GUMM.
I haven't mentioned GUMM in a while because the stock has been quiet and there hasn't been a lot to say. I received some very enlightening information today about distribution of Zicam, a new cold remedy that has been clinically proven to reduce the duration of the common cold from an average of 12 days to 1.5 days. GumTech owns 60% of Zicam, and the company just released the product in late January.
You can read the details of the information that I received at messages.yahoo.com, but to summarize, the company believes that Zicam will be on the shelf at nearly every major drug store, grocery chain, and mass discount retailer within two to four months. The number of stores that will be stocked approaches 50,000, and based on an average of only 10 units per store, GumTech would sell 500,000 units just to fill the channel. This amounts to revenue of about $4,000,000 at a wholesale price of $7.95. GumTech would book 60% of this, or $2.4 million, and this doesn't even include reorders.
Even if GumTech's revenue from gum products remains constant from Q1 99, the revenue from Zicam in Q3 or Q4 could more than double the company's quarterly revenue from Q1 99. The company has grown revenues an average of 40% sequentially for the past couple of quarters and over 100% from 1998 to 1999 so it is unlikely that gum sales will just remain flat. If you assume that the company's gum sales will continue to grow at a 40% rate and each store stocks more than 10 units of Zicam, the company's sales could triple or more in only a few months. For example, Albertsons will have Zicam in three locations in most of their stores during the cold season and will carry an average of 25 to 30 units per store.
Albertsons currently stocks Zicam and has already reordered eight times since February. Keep in mind that this is before the cold season started and they are already seeing excellent sell through to consumers. If one extrapolates the sell through at Albertsons to all the other retailers that will stock Zicam (Walmart, Target, Kmart, Rite Aid, Walgreens, CVS, Kroger, etc...), GumTech's revenue in Q3 99, Q4 99, and Q1 00 could show tremendous growth.
The information that I posted about distribution of Zicam isn't readily available and I only received it by calling the company and talking to one of the directors. The company did not provide this information in a press release to the general public and I don't think the stock has discounted the magnitude of distribution that will occur in a few months.
Not only does Zicam look very promising, but the company is also working on international distribution of a nicotine cessation gum similar to Nicorette. GumTech also plans to sell nicotine cessation gum domestically, but they must first submit a New Drug Application (NDA) to the FDA. They are currently in the process of doing this and it is likely that GumTech will start selling nicotine gum in the US in late 2000 or early 2001. Based on discussions with management, I expect the company to start selling nicotine gum internationally within 6 to 9 months. Smith-Kline Beechum sold about $800 million in Nicorette last year, and given that GumTech has a market cap of only $70 million and 7.2 million shares outstanding, one can see that nicotine gum could have a large impact on the company's earnings.
The stock has established a very solid four to five month base in the mid 9 area. Generally stocks have powerful moves once they emerge from a base of this duration. I don't know when the stock will move but I'm confident that it will move substantially higher and reward patient investors. During my more than 15 years of investing, I have held stocks from a few minutes to a year or more. I decided to hold GUMM for the long term because I think it has huge upside potential and it could move dramatically at any time.
There are over 900,000 shares sold short, and short covering alone could propel the stock a large amount based on it's average daily volume of only about 50,000 shares. GumTech is a small company and Zicam is a new product. It is likely that few people have discovered this company, and this may be the only reason why it has been flat for a few months.
Those who know me will attest that I do not hype stocks, nor do I condone hyping stocks. I have very sound reasons for being bullish on GUMM and have tried to convey some of the reasons here. I have done a tremendous amount of research on this company and stay very close to what is happening by talking to management, a major market maker in the stock, buyers for retail chains, and other investors. As the editor of Investor's Business Daily, William O'Neil, suggests, one can make big profits by investing in companies that have significant new products. I believe that GUMM is such a company and warrants a look.
As always, I'm open to positive or negative comments to the opinions expressed herein. Best of luck to everyone.
Dan |
