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I was looking through the list of top % gainers on the NASDAQ this afternoon, hoping to find a new name to share with you herre on the blog. A lot of my entries recently have been about stocks that I have recently bought, sold, or otherwise own in my Trading Account. MEDTOX Scientific (MTOX) was on the list, closing at $16.72, up $1.72 or 11.47% on the day. I believe that this small company deserves a place on the blog, and I would like to share with you some of the things that led me to this conclusion. I do not own any shares nor do I have any options on this stock.
MEDTOX (MTOX) IS RATED A BUY
What exactly does this company do?
According to the Yahoo "Profile" on MEDTOX, the company
"...through its subsidiaries, provides specialty laboratory testing services and on-site/point-of-collection devices in the United States. The company operates in two segments, Laboratory Services and Product Sales."
How did they do in the latest quarter?
On February 27, 2007, MTOX announced 4th quarter 2006 results. Revenue for the quarter increased 16% to $17.3 million over the prior year. Operating income increased 48% to $8.2 million. Income before a one-time income tax benefit accrued in 2005 came in at $1.5 million vs. $.6 million in the prior year. Diluted earnings per share were actually unchanged when the tax benefit is included at $.13/share in 2006 and $.13/share in 2005.
What about longer-term financial results?
If we review the Morningstar.com "5-Yr Restated" financials on MTOX, we can see the steady rise in revenue from $49.1 million in 2001 (except for a slight dip in 2003) to $63 million in 2005 and $67.5 million in the trailing twelve months (TTM). Earnings have also been a bit erratic--climbing from $.36/share to $1.56/share from 2001 to 2002, then dipping to a loss of $(.04)/share in 2003. Since 2003, earnings have steadily improved and remained profitable with $.40/share in 2005 and $.52/share in the TTM. This small company has maintained their stock shares outstanding with little change with 7 million shares reported in 2001, increasing to 8 million in the TTM.
Free cash flow has been improving with $1 million in 2003, $3 million in 2004, $4 million in 2005 and $6 million in the TTM.
The balance sheet appears solid with $.8 million in cash and $18.2 million in other current assets, with the total of $19.0 million in current assets easily covering the $9.9 million in current liabilities (yielding a current ratio of 1.92), as well as the $3.4 million in long-term liabilities combined.
What about some valuation numbers on this stock?
Looking at Yahoo "Key Statistics" on MTOX, we find that this is a very small company with a market capitalization of only $137.27 million. The trailing p/e isn't bad at 32.34, with a forward p/e better at 18.79 (fye 31-Dec-08). The estimated PEG (5 yr expected) comes in at a very reasonable .95. Generally stocks with PEG's between 1.0 and 1.5 are considered reasonably priced. You can infer that a stock with a PEG under 1.0 like this one is relatively cheap, and that a stock with a PEG over 1.5 is relatively expensive.
According to the Fidelity.com eresearch website, MTOX is relatively cheaply priced when evaluated by the Price/Sales ratio coming in with a Price/Sales TTM of 1.75, compared to an industry average of 6.92. Looking at the Return on Equity (ROE) TTM, to evaluate profitability, we find that the company is much more profitable than the rest of the industry with a ROE of of 9.,76%, well above the industry average of 1.54% for its group.
Finishing up with Yahoo, we find that there are 8.21 million shares outstanding and 7.47 million that float. Of those that float, 0.1% are out short or 9,310 share representing 0.5 trading days of volume (the short ratio). No dividends are paid and no stock splits are reported on Yahoo.
What does the chart look like?
If we look at a "Point & Figure" Chart on MTOX from StockCharts.com, we can see that after a dip from $8.50 in April, 2002, to a low of $3.00 in March, 2003, the stock has steadily appreciated to its current level of $16.72, where it appears to be staying right above its support line and appearing to be heading for new higher territory. The stock chart looks strong to me!
Summary: What do I think?
Well I actually like this stock although it is much smaller than the average stock I look at here on this blog. The last quarter was strong and showed solid earnings growth (if you remove the one-time tax gain in the prior year) along with steady revenue growth as well. Certainly, the medical testing area has great growth potential. Longer-term, the company has shown steady growth the past few years and valuation-wise shows reasonable valuation with a PEG under 1.0, a Price/Sales low for its group, and a Return on Equity well above the industry average. Finally, the chart looks nice and there doesn't appear to be much in the way of technical weakness on this stock. I don't own any shares, am not planning right now to buy any shares, but if I were buying shares, this is the kind of stock that would attract me to make a purchase!
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Updated: Monday, 26 March 2007 10:44 PM CDT