The Female Health Company (FHCO): What We’re Looking For

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does The Female Health Company (NASDAQ:FHCO) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

The Female Health Company (NASDAQ:FHCO)

What we’re looking for
The graphs you’re about to see tell The Female Health Company (NASDAQ:FHCO)’s story, and we’ll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at The Female Health Company (NASDAQ:FHCO)’s key statistics:

FHCO Total Return Price Chart

FHCO Total Return Price data by YCharts.

Passing Criteria 3-Year* Change Grade
Revenue growth >30% 63.8% Pass
Improving profit margin 178% Pass
Free cash flow growth >Net income growth 404.5% vs. 355.3% Pass
Improving EPS 362.8% Pass
Stock growth (+ 15%) <EPS growth 94.4% vs. 362.8% Pass

Source: YCharts. * Period begins at end of Q2 2010.

FHCO Return on Equity Chart

FHCO Return on Equity data by YCharts.

Passing Criteria 3-Year* Change Grade
Improving return on equity 122.1% Pass
Declining debt to equity No debt Pass
Dividend growth >25% 40% Pass
Free cash flow payout ratio <50% 52.8% Fail

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we’re going
The Female Health Company (NASDAQ:FHCO) comes through with flying colors, missing out on a perfect score only due to an elevated free cash flow payout ratio, which has been in steady decline over the last three years — we could see a perfect score in 2014. Over the past three years, The Female Health Company (NASDAQ:FHCO)’s revenues and earnings have been increasing rapidly, and its share price has actually lagged this fundamental growth. This is a very strong performance, but can The Female Health Company (NASDAQ:FHCO) keep up its progress? Let’s dig a little deeper to find out.

In 2011, an estimated 1.7 million people died due to HIV/AIDS and other sexually transmitted diseases, and more than 2.5 million new cases of HIV-infected people were reported. The U.S. government spent $28 billion in 2012 to fight HIV/AIDS through various health awareness campaigns and providing medical treatment to HIV-infected people. Many Asian and African countries have been affected, which has cost many lesser-developed countries in terms of economic growth and population health in recent years. However, the last decade has seen a drop in the number of new HIV infections around the world.