Meridian Bioscience: Poised to Move Up

We are in a bear market. And you are seeing a bear market rally that can turn anyone into an optimist. Some of the greatest quotes about bear market rally can be found in a lot of the Dow Theorists' writing. Therefore, if you plan on investing your hard earned money in this market, be aware of the risk you are taking as the market can fall much faster than it can rise.

I enjoy searching for companies with good fundamentals that may have been mispriced by the market. It is often easier said than done, but I believe this is where the big gains can be had. One company I came across was Meridian Bioscience Inc. (VIVO). The company provides medical devices such as diagnostic equipment. You may think of them as a smaller Abbott Laboratories (ABT). As a matter of fact, Abbot is one of their competitor. To find out more about Meridian click here.

Fundamentally, Meridian is solid. The company carries no debt, produces free cash flow, and has a strong dividend history. The most striking aspect of my finding was that the company was able to pay dividends consistently while raising them at an amazing compound annual growth rate of 23%! This compare to 10% growth rate of Abbott Labs. An amazing stat doesn't come without its risk. At the current dividend payout of $0.68, it has a payout-ratio of 74%. You ask, what is the significant of this? Let me show you an example.

We all know that S&P 500 did nothing in 10 years, so let's see what Meridian and Abbott did.

Abbott:

If you purchased the stock at 52wk high of $53.31 (price adjusted for split) and sold it at the low of $44.1 in 2009, you would have a loss of 17%. The dividend went from $0.66 to $1.44, a 118% rise!

Together, you have a loss of 16%. By the end of 2009 low, you have a 3% yield (1.44/53.31)!

Meridian:

If you purchased the stock at 52wk high of $3.89 (price adjusted for split) and sold it at the low of $17.10 in 2009, you would land a crazy 340% return. The dividend went from $0.09 to $0.68, a whopping 665% rise!

Together, you would have a gain of 347%. By the end of 2009's low, you would have a 17% yield! (0.68/3.89)

Maybe it is the law of small numbers (or big numbers), but how is it possible that a current small cap company like Meridian ($682M) can sustain such an amazing track record? I don't know.

All I know is that it did. Many analysts urge you to "see where the company is going"; well I don't have a crystal ball and frankly it is just too hard. Meridian compares to a person with a credit score of 760 and thus I will surely have my money with Meridian.

Think about forecasting for a second. When you go to a bank to get a loan, the most important thing is your past record. They are less concerned about your potential to earn. I believe it is easier to do the same with an investment.

Comments

[Jolly_Rancher:]

Just like most of the crummy stocks that are pumped here on seekingalpha, VIVO took a major dive today on lower guidance. Glad I passed on this one.

Apr 16 01:47 PM

[Arsuron Pap...:]

Jolly, indeed VIVO took a dive today. The stock is trading in a bearish territory (below 200day MA and 50day MA) so sure it probably will take a hit if it guide down the earning. Here's some highlight:
Revenue fell 8%
Op. Income up 2%
Net Earning fell 1%
Diluted Earning is flat!
Already this provide me with some light on how good the management is. If top line fell 8% but net fell on 1%, that is good news to me as a share holder.
What is most important has to do with Dividend.
"This is an annual indicated cash dividend rate of $0.68 per share, representing a 21% increase over the fiscal 2008 rate of $0.56 per share."
Last I check, no one I got got a 21% raise in their paycheck.
The bad side, they guided down to $0.77 from $0.81, a drop of 5%.

My model shows a yield of 6% as a bottom which takes the stock to $10-$11 range.

I'm beginning my accumulation.

Apr 16 04:09 PM

[pappa:]

-----"If you purchased the stock at 52wk high of $3.89 (price adjusted for split) and sold it at the low of $17.10 in 2009, you would land a crazy 340% return. The dividend went from $0.09 to $0.68, a whopping 665% rise!"

Since when is $3.89 highger than $17.10??

Apr 22 10:17 AM

[Arsuron Pap...:]

Pappa,

Thanks for catching my mistake. I forget to mentioned the 52wk high of $3.89 was in 1999.
See this post for revision.
artiinvest.blogspot.co...

Thanks again.

On Apr 22 10:17 AM pappa wrote:

> -----"If you purchased the stock at 52wk high of $3.89 (price adjusted
> for split) and sold it at the low of $17.10 in 2009, you would land
> a crazy 340% return. The dividend went from $0.09 to $0.68, a whopping
> 665% rise!"
>
> Since when is $3.89 highger than $17.10??

Apr 22 06:26 PM