Trading at $5.30 as of June 7, 2002
Happy Father's Day, Dad!
I'm about to introduce you to a company that may seem a bit wacky. I'll state at the outset here that I don't think you should run out and buy shares of it immediately. But it may be worth keeping an eye on.
The company actually has a lot to do with fatherhood and parenthood. It's called Cryo-Cell International
"Cord blood, or umbilical cord blood, is blood that remains in the umbilical cord and placenta at the time of birth. This blood has typically been discarded following delivery; however, medical science is now aware that cord blood is a rich source of stem cells, which can be collected, processed, and cryogenically preserved for potential, future use.
"...In addition, cord blood is 'privileged' or unexposed to most diseases, which can make bone marrow from an adult more difficult to use in transplantation. But most importantly, cord blood from your baby is a perfect match for your child, in the unlikely event it should ever be needed, and a 1-in-4 chance of matching a current or future sibling."
Here are some reasons why the company intrigues me as a possible investment:
- This new little industry, or niche, appears to be growing briskly. Between fiscal years 2000 and 2001, Cryo-Cell's revenues more than doubled, from $2.2 million to $5.7 million. (Tiny numbers? Well, yes. But if they continue to grow in the short term at 50% per year, they'll top $300 million in 10 years.) Sales over the past 12 months totaled $6.4 million.
- What Cryo-Cell is offering is in many ways easy to market -- a kind of biological insurance for your child. Parents are generally eager to give their precious little newborn every possible edge in life.
- In the company's first quarter for fiscal 2002, it posted a net income of $46,642 vs. a loss of $287,784 a year earlier. It appears that young Cryo-Cell is entering the land of profitability.
- The company is busy making money through licensing. President John Hargiss said about Cryo-Cell Europe: "Considering that our entitlements are 10.5% to 15% of processing and 18% to 25% of storage fees and that all marketing and advertising costs are the responsibility of our licensees, our international business should make an increasing contribution to Cryo-Cell's income."
- There's a fledgling moat in this business -- a competitive edge. Once you sign up to have Cryo-Cell store your baby's cord blood, you're not likely to switch to a new company later. In addition, you'll be making many payments to the company over the years, not just forking over a one-time fee. Any business that has locked in repeat payments has a good thing going.
Of course, every company carries some risks and with Cryo-Cell's youth as well as the newness of the entire cord blood-storage proposition, there are probably more risks here than with most other companies. For example:
- It's a penny stock. The shares have recently been trading south of $5, though not by too much. Penny stocks tend to be extra risky, representing young, unproven companies, many of which don't survive. Cryo-Cell is not necessarily an exception.
- Since the company is so young (founded in 1989), it doesn't have a solid track record of profitability. There's much to be hopeful about, but not much to count on. Its profit margins, returns on equity and assets, and many other measures have been all over the map. Cryo-Cell's cash reserves have been rising, while its debt load is very small -- both reassuring. But its number of shares outstanding has risen by 57% since 1997 and its accounts receivable more than tripled between fiscal years 2000 and 2001.
- Controversy is another risk. Stories in the media point out that the odds of anyone needing to tap their cord blood stored in a bank are low. In short, it may not be worth it to use the services of Cryo-Cell.
- Arguably a bigger issue is the availability of free, public cord blood banks. These entities will not be storing your child's cord blood for your family, but instead for society. By donating to a public bank, you'll probably be much more likely to save someone else's life than you would be to save a family member's life via a private bank.
- Another concern is science. There may come a day when cord blood is no longer thought to be valuable or necessary. Perhaps a more attractive or promising alternative will be discovered. If so, then Cryo-Cell's future will be significantly compromised.
The bottom line is that I still think this is a very interesting company. If you agree, perhaps add it to your watch list and see how it performs over the coming quarters or years. If and when you think its upside potential outweighs its downside risk, consider investing.
Here are some resources offering more information:
From The New York Times: " The Hope, and Hype, of Cord Blood" (free registration required)
Lots of links to articles and information from the UCLA Umbilical Cord Blood Bank, a public bank, mostly dismissive of private banks.
And, by the way, Dad, congratulations on becoming a granddad!
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A Stock for Dad represents the opinion of one Fool and should in no way be taken as the opinion of either The Motley Fool, Inc. or the company in question, or as representative of anyone or anything other than that specific Fool's thoughts.