Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Female Health (VERU 3.53%) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.
What we're looking for
The graphs you're about to see tell Female Health's story, and we'll be grading the quality of that story in several ways:
- Growth: Are profits, margins, and free cash flow all increasing?
- Valuation: Is share price growing in line with earnings per share?
- Opportunities: Is return on equity increasing while debt to equity declines?
- Dividends: Are dividends consistently growing in a sustainable way?
What the numbers tell you
Now, let's take a look at Female Health's key statistics:
FHCO Total Return Price data by YCharts.
|
Passing Criteria |
3-Year* Change |
Grade |
|---|---|---|
|
Revenue growth >30% |
63.8% |
Pass |
|
Improving profit margin |
178% |
Pass |
|
Free cash flow growth >Net income growth |
404.5% vs. 355.3% |
Pass |
|
Improving EPS |
362.8% |
Pass |
|
Stock growth (+ 15%) <EPS growth |
94.4% vs. 362.8% |
Pass |
Source: YCharts. * Period begins at end of Q2 2010.
FHCO Return on Equity data by YCharts.
|
Passing Criteria |
3-Year* Change |
Grade |
|---|---|---|
|
Improving return on equity |
122.1% |
Pass |
|
Declining debt to equity |
No debt |
Pass |
|
Dividend growth >25% |
40% |
Pass |
|
Free cash flow payout ratio <50% |
52.8% |
Fail |
Source: YCharts. * Period begins at end of Q2 2010.
How we got here and where we're going
Female Health comes through with flying colors, missing out on a perfect score only due to an elevated free cash flow payout ratio, which has been in steady decline over the last three years -- we could see a perfect score in 2014. Over the past three years, Female Health's revenues and earnings have been increasing rapidly, and its share price has actually lagged this fundamental growth. This is a very strong performance, but can Female Health keep up its progress? Let's dig a little deeper to find out.
In 2011, an estimated 1.7 million people died due to HIV/AIDS and other sexually transmitted diseases, and more than 2.5 million new cases of HIV-infected people were reported. The U.S. government spent $28 billion in 2012 to fight HIV/AIDS through various health awareness campaigns and providing medical treatment to HIV-infected people. Many Asian and African countries have been affected, which has cost many lesser-developed countries in terms of economic growth and population health in recent years. However, the last decade has seen a drop in the number of new HIV infections around the world.
This is an opportunity for Female Health to help the world and to help its own financial health. The company's FC2 condom, which protects women from HIV/AIDS and other sexually transmitted diseases, is the only female condom approved by the Food and Drug Administration and the World Health Organization. Fool contributor Dan Newman notes that Female Health has distributed more than 20 million condoms and trained 10,000 health providers in South Africa to fight against HIV/AIDS. Over the next six years, the company plans to invest $14 million in promoting HIV/AIDS and reproductive education with the help of global agencies, which should reach more than 120 million women by 2020. Additionally, it will ramp up its stock-buyback program, buying back the remaining one-third shares of the company's stock.
Putting the pieces together
Today, Female Health has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.
