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Home Diagnostics Offers Value To Diabetics and Investors

 December 15, 2008 02:52 PM

With good returns so far since I profiled Caraco Pharma (CPD) as a defensive growth stock at a value price, a related company in the ETF Innovators (ETFI) Global Healthcare Cost Containment Index with similar value parameters is Home Diagnostics (HDIX) – which makes affordable blood glucose monitoring systems and disposable testing supplies (web link to HDIX product page) under its own brand names (such as TRUE and Prestige) and co-branded partnerships with leading retail pharmacies such as Rite Aid (RAD), Walgreen (WAG), and CVS Caremark (CVS) as value-priced, store-branded products.

The accompanying 3-year chart (click to enlarge) illustrates that HDIX has lost more than half of its market value since its IPO in late 2006, underperforming both the Healthcare Sector SPDR (XLV) and Caraco Pharma (CPD) during this period. Also, the 3-month chart of HDIX shows a drop of more than 50% over this short period of time.

As of Friday's close, HDIX trades at an enterprise value (EV) to revenue ratio of just 0.4X, EV to EBITDA ratio of 2.9X with a market cap of $82M, enterprise value of $48M, trailing 12-month (ttm) revenue of about $122M, net income (ttm) of $8M, and a PE (ttm) of 11X. The current share price of $4.70 includes zero debt and about 2 bucks per share or $34M in cash while generating $11.9M or 63 cents per share in operating cash flow in the past year.

Last month, HDIX reported 3Q08 revenue of $35.6M (up 12.2% from the year-ago period) and net income which decreased to $4.5M or $0.24 per weighted average shares outstanding of 18.8M, versus $5.2M in net income in the year-ago period. In August, HDIX received FDA approval for no-coding (which is easier for patients to use since no additional steps are required when starting a new drum of test strips) blood sugar monitoring products, TRUE2go and TRUEresult.

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