No. of Recommendations: 11
Anyone interested in a Danish healthcare company with a terrible looking long-term stock chart? Oh and one that doesn't get much media attention or analyst coverage. Then have I got a stock for you! I posted about this on the non-US stock board previously and it was so exciting that exactly 0 people cared. But now, its down 35-40% from when I posted about it so (1) they were right to ignore it; and (2) it now qualifies for the falling knife board.
Coloplast A/S engages in the development and sale of intimate healthcare products and services in Denmark, the United States, the United Kingdom, France, and internationally. The company operates through Chronic Care, Continence Care, Voice and Respiratory Care, Interventional Urology, and Advanced Wound Care segments. It provides ostomy care products, continence care products, catheters, and wound care products. Coloplast A/S was founded in 1954 and is headquartered in Humlebæk, Denmark. The company has a long history and track record, but does not have a lot of analyst coverage (it trades OTC in the US).
It is trading at a very low valuation vs historical, and its in a messy transitional state. It reported a messy set of numbers due to some changes in its product portfolio (divestiture and acquisitions) back in the previous quarter. It reports on the current quarter on May 12, but held a special call last week to announce a downward revision in their forecast for the year due to changes in medicare reimbursement rates announced in Q1 for skin tissue products. That is always fun.
But underneath the messiness, yes even including that stupid medicare adjustments (yes, I think it’s a poor decision by medicare) the long term growth and profitability of this business seems attractive to me. They have mid to high single digit organic growth across their business lines + sustained profit margins that should go on for a long time. I think this stock will go higher as the underlying organic growth show through. The only change that is negative is they took on a lot of debt to acquire a new generation of skin care technology while ditching their very old line that is being commoditized. Was it too much? Yes – I think with the medicare reimbursement change that is no longer a question. They took a writedown on the value of the goodwill and they also took on a lot of debt to make the acquisition. But their coverage ratios seem okay, their dividend seems safe (cross my fingers)and as an equity holder, and their valuation today reflects this poor decision.
The PE is now very reasonable with the stock down 40% since last year, and it is much lower than their historical PE. Its a solid set of businesses, with high single digit long term growth in front of it (7-8%), not exposed to volatility like many businesses (I guess I have to modify that given the medicare volatility that just happened), and capable of getting more margin out of the business than it does today. Gavin Wood, former CEO of one of the medical device businesses at JNJ just took over as CEO. I think that transition alone and now having a permanent CEO in place who is very credible and knowledgeable will help with getting the business back on track..
I already had a decent position accumulated at about $9/share under the CLPBY ADR, but added substantially to position size when it hit <$6.50. Dividend yield is also attractive. I hope the falling knife doesn’t cut off anymore fingers.
