It's sometimes hard to put a company in just one box.
For instance, do Lucent's (NYSE:LU) declining revenues make it a short candidate, or does its projected triple-digit profit growth for this year make it a growth investment? Or Ciena (NASDAQ:CIEN): Does its billion-dollar cash pile make it a potential Green Gene, or does its lack of free cash flow make it a short? Krispy Kreme's (NYSE:KKD) stock price has been knocked down so low it might be a good turnaround play. And if it returns to its old growing ways, it might even become a growth company again.
Even a little company such as biomedical products maker Kensey Nash (NASDAQ:KNSY), with a business model so simple that even a Fool can comprehend it, seems to fit easily in any of several boxes. It was tapped as a Motley Fool Stock Advisor selection more than a year ago, but based on its small-cap status and low enterprise value-to-free cash flow-to-growth ratio, the company could just as easily have been selected as a Hidden Gem. Why, with $61 million in net cash nestled deep within its balance sheet, comprising more than 20% of its market cap, the company could almost be a pick for the Fool's latest newsletter for seekers of Inside Value.
Whichever box you put Kensey in, though, it had better be a big one. Because on Tuesday, this small cap reported outsized profits for fiscal 2004. Total revenues increased 31%, composed of a 34% increase in product sales and a 30% rise in royalties (despite a negotiated royalty rate decrease). Earnings per share rose 39% -- although if you back out the effects of a tax credit received last year, that figure would have been 55%.
The company sees growth continuing through 2005, albeit at a slower pace. Kensey predicts revenues in the neighborhood of $71 million (for 22% annual growth) and profits of about $1.20 a share (for 13% annual growth). The reason for the slowdown? While sales are expected to again grow by more than 30%, Kensey expects its higher-margin royalty revenues to remain essentially flat year-on-year.
Wall Street, although initially spooked by the expected downturn in growth, quickly changed its mind on this one and started bidding Kensey's stock up early on Wednesday morning. And I think the Street is calling this one right. No company grows at 30% a year, across the board, forever. The fact that the larger of Kensey's two main revenue streams is continuing to accomplish that feat is plenty of reason to like this company.
Are you a medical professional? Do you play one on TV? Or do you just want to find out what practicing physicians think about Kensey Nash's products? Drop by the Foolish Doctors board and talk the company over with the experts.
Fool contributor Rich Smith owns no shares in any companies mentioned in this article.
