August 13, 2007

Home Diagnostics

Despite disappointing Mr. Market, the Florida-based provider of blood sugar-monitoring systems continues to own a leading position in the diabetes market -- its Sidekick product is the world's smallest blood glucose-testing system. The company has managed double-digit returns on capital over the last couple of years and sports strong retail relationships with the likes of Safeway (NYSE: SWY) and Walgreen (NYSE: WAG), so there's a chance that the sell-off might have been excessive. The shares currently trade at an EV/EBITDA of 5.7 and a PEG of 0.67.

Additionally, all four Wall Street firms covering Home Diagnostics on CAPS -- Barrington Research, William Blair, Piper Jaffray, and Deutsche Securities -- also rate it an outperform.

CAPS All-Star blutzed44 diagnosis the situation:

I like this company for a couple of reasons; the most important of which is a strong balance sheet (increasing cash and zero debt). Also, the company is increasing structural free cash flow. This will be a volatile stock (look at the chart), but the strong balance sheet and solid business model will help this one outperform in the long term ...

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