Endocare: Innovative Treatments

10/01/2002 12:00 am EST


James Oberweis

Editor, The Oberweis Report

The Oberweis Report seeks rapidly growing companies where revenues and earnings are rising by at least 30% each year. Value plays an important role in a company's selection, as Oberweis generally only invests in a company if its price/earnings ratio is less than one-half of its growth rate. The overall goal is to find companies in the early stages of an earnings acceleration in order to benefit from both rapidly growing earnings and multiple expansion. The service has clearly accomplished its goals: The Oberweis Report was ranked as #3 by The Hulbert Financial Digest for the ten-year period from year-end 1990 through year-end 2000. 

“Our focus on healthcare is not random. In the present environment, we find an ever-increasing number of high-growth, profitable companies in this sector. Healthcare is an area of rapid change, and that is where one finds a concentration of high-growth companies with new ways of solving problems. Furthermore, demographics alone will serve as a significant growth catalyst for healthcare companies in the years to come.

I am also pleased to report that the valuations of healthcare stocks appear to be attractive when compared to historical norms. Healthcare as a sector has declined about 18% year-to-date, and now appears to be about 10% undervalued, based on historical average p/e multiples.

Within the group of biotechnology drug discovery tool developers, take a look at SFBC International (SFCC NASDAQ). In the niche pharmaceutical market, we continue to like portfolio companies Bradley Pharmaceuticals (BPRX NASDAQ) and Taro Pharmaceutical Industries (TARO NASDAQ). Among medical device developers, we continue to recommend Advanced Neuromodulation (ANSI NASDAQ), which recently broke to a new high.

We are also adding one new stock to our model portfolio–Irvine, California-based Endocare (ENDO NASDAQ). The company is a medical device firm focused on the development of innovative diagnostic and treatment tools for cancer and other diseases. The company manufactures minimally invasive medical devices to treat urological conditions. Endocare has initially concentrated on developing devices for the treatment of the two most common diseases of the prostate:  prostrate cancer and benign prostate hyperpasis. In addition, the company is developing cryosurgical technologies for treating tumors in organs such as the kidney, breast, and liver.

Revenues in the most recent second quarter increased over 200% to $11.4 million from $3.5 million in the same year-ago period. Earnings per share in the last quarter grew to $0.05 versus a loss in the year-ago second quarter. For fiscal 2002, we estimate revenues of $50 million (up from $15.7 million in 2001) and earnings of $0.35 a share (versus a deficit). For fiscal 2003, we estimate revenues of $80 million and earnings of $0.90 per share. The stock may be appropriate for risk-oriented investors.”

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