With HIV/AIDS and other sexually transmitted diseases still posing serious health risks in many parts of the world and with concerns about a population explosion hitting economically disadvantaged areas, Female Health's (NASDAQ:VERU) contraceptive products give women more control over their health.
It's a small company, but it serves the important purpose of addressing vital health issues both in the U.S. and throughout the world. With its female condom, Female Health is able to serve consumers who want reliable contraception far more cheaply than birth control pill providers, and more importantly, unlike the pill, barrier methods also give women protection from sexually transmitted diseases.
The company is largely dependent on non-profit organizations and government entities for its revenue. More than half of Female Health's sales come from the United Nations Population Fund and the United States Agency for International Development, with an emphasis on the middle portion of the African continent. In the U.S., relationships with major urban public health departments, as well as Planned Parenthood, have promoted Female Health's FC2 condom, and although orders from Brazil and South Africa faced delays due to shifting government priorities, the company has done a good job eventually bringing sales in.
The case for Female Health
Some may find Female Health's products controversial, but the company nevertheless does a good job of being business-savvy even as it deals with government agencies and nonprofits. With fewer than 150 employees, the company brings in more than $200,000 in revenue per workers, attesting to the efficiency of its staff. Even with the assistance of massive aid organizations to help the company with distribution, the fact that such a small company is able to meet such a huge need attests to the dedication of company workers to get the job done.
Female Health's customer base appears devoted to the company. With efficient processes for getting products to customers, Female Health makes those customers comfortable with its orders. Moreover, with a single optimized product, Female Health makes it simple for customers to focus on the needs of the people they themselves serve rather than having to decide on an appropriate mix of products to suit those they're trying to help.
You might not think having government aid agencies as clients would be extremely profitable, but Female Health is a great example of capitalism at work. The stock trades at a modest multiple of just 14 times trailing earnings, and investors receive a dividend that currently yields more than 3%. With the stock having risen more than 250% in the past five years -- despite the intervening financial crisis -- Female Health has staying power that will last as long as the threat of sexually transmitted infections persists.
Yet despite earning a profit, Female Health still has as its primary mission the eradication of HIV/AIDS. By promoting female condoms successfully in countries including Brazil, India, Zimbabwe, South Africa, and Papua New Guinea, Female Health has dealt with different moral attitudes about its product and does so in a manner that's cost-effective even for people of limited means around the world.
Foolish bottom line
With only one product and with such a high reliance on government and nonprofit entities, Female Health is vulnerable to changing market conditions. If male-condom maker Church & Dwight (NYSE:CHD) were to enter the market, it's uncertain how well Female Health could compete.
For now, the advantage that Female Health has is that it's relatively small and its market is still limited in scope. As long as it can hide under the radar, Female Health should be able to survive and thrive in its niche and keep serving both its direct customers and the immense populations they serve. And at some point, if the market grows, then a large competitor might just decide to acquire Female Health rather than trying to drive it out of business.
Female Health has played a vital role in trying to make some of the poorest areas of the world safer and healthier. As long as women's health remains an unfilled need for billions of people across the globe, Female Health will have a role to play in addressing that need.
Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.