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Strategies & Market Trends : The picks

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To: steve susko who wrote (4853)	2/13/1997 12:25:00 AM
From: Paul Schmidt	of 6124

Steve, some quick thoughts on why I like PPD so much. (1) Totally a niche market. LMO(Legal Maintenance Organization) is still a term that hasn't caught on. Probably because people think of HMO when they see the acronym. The founder of PPD, Harland Stonecipher, started the concept after a costly automobile accident in the 70's. The company didn't really start growing till just a few years ago. From FY '93 to '94 they experienced a 48% revenue growth rate and from '95 to '96 it was 59% while earnings grew by 63%. (2) Nice balance sheet. 50M assets(15M cash), 10M liabilities, no short-term or long-term debt. No research and development costs, just have to keep signing up new members and keep the existing ones. (3) Hasn't disappointed yet(knock on wood). In the past four years revenue has steadily increased and earnings are really starting to take off. If you subscribe to briefing.com you can see all the revenue and earnings information summarized nicely from 93 to 96. My short-term outlook is neutral to slightly bullish. It made a nice runup from Nov'96 to Jan'97 from around $11 to 18 and has settled into a trading range of $16-18 since then. I don't think it will ever see $11 again unless there is a serious broad market correction. Long-term the sky is the limit. If they can keep signing up new members and keep at least 80% of existing ones then I so no reason for them to not maintain at least a 50% growth rate for many years. I have heard that the LMO is a potential 15-25 billion dollar business. At this moment there is only one competitor, Midwest Legal, but they are relatively new in this game. It is a great money machine. Drop by the PPD thread and read the posts. There are a lot of good ones that provide much more insight than I can provide here. I guess one thing to be concerned about is the most recent quarter. Earnings were fantastic but compared to last year it just barely eeked out 50% growth in revenue. That is still great but the two previous quarter-to-quarter revenue rates were 62% and 66%. Is it the start of a slowdown or just a pause before it really starts flying? Next quarter earnings will be very important indicator to the future of this stock. Good luck on whatever you decide to do.

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