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  • 3 Profitable Consumer Stocks Holding Down The Debt 0 comments
    Sep 21, 2012 8:26 AM | about stocks: CHKE, COH, FHCO

    Consumer stocks are in favor with many investors in this current economy. People are still buying products, especially from companies that are known for their reliability and quality. To find consumer stocks with solid fundamentals, we focused on two elements for our screen today: minimal debt and strong profits. This is a combination that typically points to a company that has effective management in place and is not hindered by paying off debt which creates a clear path for growth and innovation. The companies that surfaced may be familiar to you. We think you will enjoy comparing their data and graphs to see if any spark your curiosity.

    The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.

    The Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.

    Return on Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.

    The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue

    We first looked for consumer stocks. We then screened for businesses that operate with little to no debt (D/E Ratio<.1). From here, we then looked for companies that operate with little to no long term debt (Long Term D/E Ratio<.1). We then looked for businesses that have been able to maintain a sound level of profitability for shareholders (ROE [TTM]>30%)(Net Margin [TTM]>10%). We did not screen out any market caps.

    Do you think these stocks are at too low of valuations, given their fundamentals? Use our list along with your own analysis.

    1) The Female Health Company (NASDAQ:FHCO)

    Sector Consumer Goods
    Industry Personal Products
    Market Cap $197.07M
    Beta 0.80

    FHCO stock chart

    Key Metrics

    Debt/Equity Ratio 0.00
    Long Term Debt/Equity Ratio 0.00
    Return on Equity 69.54%
    Net Margin 36.08%
    Short Interest 4.02%

    The Female Health Company manufactures, markets, and sells consumer health care products in the United States and internationally. It offers the FC2 female condom, which provides dual protection against unintended pregnancy and sexually transmitted diseases, including HIV/AIDS. The Female Health Company sells its products to public health clinics, as well as to not-for-profit organizations. It markets its product directly, as well as through distribution agreements and other arrangements with commercial partners, which market directly to consumers in various countries. The company was founded in 1896 and is headquartered in Chicago, Illinois.

    2) Cherokee Inc. (NASDAQ:CHKE)

    Sector Consumer Goods
    Industry Textile - Apparel Clothing
    Market Cap $122.75M
    Beta 0.99

    CHKE stock chart

    Key Metrics

    Debt/Equity Ratio 0.00
    Long Term Debt/Equity Ratio 0.00
    Return on Equity 46.16%
    Net Margin 21.81%
    Short Interest 6.66%

    Cherokee Inc. markets, manages, and licenses lifestyle brands for apparel, footwear, home, and accessories worldwide. The company owns various trademarks, including Cherokee, Sideout, Sideout Sport, Carole Little, Saint Tropez-West, Chorus Line, and All That Jazz. It also assists other brand-owners, companies, wholesalers, and retailers in identifying opportunities as a licensee or licensor for their brands or stores. As of January 28, 2012, the company had 26 continuing license agreements covering domestic and international markets. Cherokee Inc. was founded in 1988 and is headquartered in Van Nuys, California.

    3) Coach, Inc. (NYSE:COH)

    Sector Consumer Goods
    Industry Textile - Apparel Footwear & Accessories
    Market Cap $17.22B
    Beta 1.58

    COH stock chart

    Key Metrics

    Debt/Equity Ratio 0.01
    Long Term Debt/Equity Ratio 0.00
    Return on Equity 57.63%
    Net Margin 21.81%
    Short Interest 5.77%

    Coach, Inc. engages in the design, marketing, and distribution of handbags, accessories, wearables, footwear, jewelry, sunwear, travel bags, watches, and fragrances for women and men in the United States and internationally. The company offers women handbags, as well as business cases, computer bags, messenger-style bags, and totes for men. Its accessories comprise small leather goods consisting of money pieces, wristlets, and cosmetic cases for women, as well as wallets and card cases for men; novelty accessories comprising time management and electronic accessories, key rings, and charms; and belts.

    The company's wearables consist of scarves, jackets, gloves, and hats; jewelry covers bangle bracelets, necklaces, rings, and earrings made with sterling silver and non-precious metals; travel bags comprise luggage, travel kits, and valet trays; and women's fragrance collections consist of eau de perfume spray, eau de toilette spray, purse spray, body lotion, and body splashes. It manufactures its products through independent manufacturers. The company also licenses rights to distribute the Coach brand products, including footwear, eyewear, watches, and fragrances. It markets its products directly to consumers through a network of company-operated stores in North America, Japan, Hong Kong, Macau, mainland China, Taiwan, and Singapore, as well as the Internet; and through department stores, specialty stores, and other online retailers. As of June, 30, 2012, the company operated 354 retail and 169 factory leased stores in North America; 180 Coach-operated department store shop-in-shops, retail stores, and factory stores in Japan; 96 Coach-operated department store shop-in-shops, retail stores, and factory stores in Hong Kong, Macau, and mainland China; and 34 Coach-operated department store shop-in-shops, retail stores, and factory stores in Taiwan and Singapore. Coach, Inc. was founded in 1941 and is headquartered in New York, New York.

    *Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/19/2012.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

    Stocks: CHKE, COH, FHCO
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