A Reader Writes "LifeCell.....what do you think?"
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am truly an amateur investor and that you need to check with your professional investment advisors prior to making any decisions based on information on this website!

We had another good day in the market with the Dow and the Nasdaq, and particularly our stocks :), trading higher! Will the stock market go higher or pull back? Beats me! I do not believe I can predict the direction of the stock market. I just believe that we all will have the best performance simply by owning stocks with solid fundamentals and a bit of price-momentum to boot!

Looking through my mail, I realized that there was a question that I haven't addressed. My good friend George K. dropped me a note about LifeCell (LIFC). I don't know, but I suspect that he owns some shares. I do not own any LIFC shares. George wrote:

Hi Bob,
I've been enjoying your blog...it's very informative...here is a stock I would like your opinion on: LifeCell corp LIFC. It had a blowout last quarter, and the fundamental charts on Morningstar looked not too bad to me. What do you think?

George

Well, first of all thank you for writing George! I very much enjoy discussing stocks with you and you have certainly educated me about many different investments!

First of all, I am very familiar with LIFC. I did purchase some shares back in 2003 but didn't hold on to them for long. Actually, I did post LifeCell on Stock Picks on 6/18/03 when it closed at $5.82/share. LIFC closed today (6/19/05) two years later (!) at $13.08, up $7.26, or 124.7% since it was selected for Stock Picks two years ago!

Let's take a look at LIFC and see what's going on now.

First of all, according to the Yahoo "Profile" on LIFC, LifeCell "...develops and markets products made from human tissue for use in reconstructive, urogynecologic and orthopedic surgical procedures to repaid soft-tissue defects."

How about the latest quarter? LIFC reported 1st quarter 2005 results on April 26, 2005. For the quarter ended March 31, 2005, revenue came in at $19.9 million, up 45% from the $13.8 million of revenue in the same quarter the year earlier. This revenue number beat analysts expectations of $17.6 million.

Net income for the quarter rose to $2.1 million or $.07/share up from $883,000 or $.03/share last year. Analysts were looking for $.04/share, so the company again beat expectations.

To top it off, the company raised guidance both for sales and earnings above current analyst targets.

How about longer-term results? Looking at "5-Yr Restated" financials from Morningstar.com, we can see the beautiful ramp-up of revenue from $22.8 million in 2000 to $67.3 million in the trailing twelve months (TTM).

Earnings improved from $(.54) in 2000 to a peack of $.70/share in 2003. The earnings dipped to $.22/share in 2004, but is on the rise again.

Free cash flow, while erratic, has improved from $2 million in 2002 to $6 million in the TTM.

The balance sheet is impeccable! Morningstar shows $27.8 million in cash, enough to pay off both the $9.3 million in cash and the $.2 million in long-term liabilities several times over. In addition, Morningstar reports an additional $27.1 million in other current assets.

How about valuation? What are the investment statistics on this stock? For this I like to turn to Yahoo "Key Statistics" on LIFC. Here we can see that this is a small cap stock with a market capitalization of $382.68 million. The trailing p/e is a bit rich at 50.11, the forward p/e (fye 31-Dec-06), is a bit better at 31.90. The PEG ratio (5-yr estimated) is great at 0.84.

The Price/Sales ratio appears high at 5.66. But if we look at other stocks in the same Industry, "Biotechnology", we can see that LIFC is actually towards the bottom of the P/S ratio stocks. At top is Genentech (DNA) at 18.5, Gilead (GILD) at 12, Amgen (AMGN) at 12, Biogen Idec (BIIB) at 6, and below LIFC is Medimmune, at 5.6. Thus valuation isn't bad when you consider the particular industry group.

Other statistics on Yahoo reveal that there are 29.26 million shares outstanding with 29.10 million of them that float. Currently, there are (4/8/05) 993,000 shares out short, representing 3.41% of the float or 5.773 trading days of volume. If I use my "3-day" rule, this is a significant backlog of shares "pre-sold" that need to be covered! No cash dividend is reported. No stock splits are reported on Yahoo.

So what does the chart look like? If we check a "Point & Figure" chart on LIFC from Stockcharts.com:

We can see that this stock was actually acting quite week from March, 200, when it was at $13, and then traded lower steadily, bottoming at $1.25 in December, 2000. The stock traded in a tight range through 2001, 2002 and into 2003. In May, 2003, the stock broke through resistance at around $3.25, and traded higher.

So George, what do I think? I still like LIFC! The recent quarter, as you noted was GREAT. The company is raising guidance on both earnings and revenue, the Morningstar 5-Yr evaluation looks great except for a bit of recent sloppiness on the earnings side of things. The company is quite solvent, generating significant free cash with a beautiful balance sheet! I guess I might even be buying some shares if the company was just fitting in to my rules...that is if I were selling a portion of my holdings at a targeted gain, and the stock was making it to the top % gainers list!

If you or anyone else has any questions or comments, please feel free to email me at bobsadviceforstocks@lycos.com!

Bob