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Strategies & Market Trends : The GUMMMy Bear Squad touting Gum Tech (NASDAQ: GUMM) -- Ignore unavailable to you. Want to Upgrade?

To: Phil(bullrider) who wrote (154)	3/8/2000 10:28:00 PM
From: DanZ	Read Replies (1) \| Respond to of 207

<I asked a while back if anyone knew whether or not GUMM was stocking the shelves on consignment, and never got an answer.> I answered this question several months ago when it came up. Gum Tech does not sell Zicam or any other product on consignment. This answer came directly from the company. <If so, from some of our informal surveys, they will be getting some product back.> Gum Tech does not accept returns unless the goods are damaged or returned by a customer under the company's money back guarantee. In this case, retailers are usually reimbursed and simply dispose of the goods. Gum Tech puts a percentage of sales into reserves to cover this expected cost. The reserves are deducted from sales and never show up on the income statement. The amount of money that Gum Tech is putting in reserves is above the industry average because Zicam is a new product. They plan to reduce the amount of reserves after Zicam is established. This is obviously a conservative accounting strategy. At any rate, I think that you have exaggerated the amount of product remaining in the channel and seriously doubt if any retailer has enough product to even consider returning it. They don't clean the shelf off completely during the off season and the company has received feedback from retailers that Zicam is selling well. Mad2: I am always open for an honest discussion of Gum Tech or any other company that people want to discuss. It is unfortunate that most of the posts on the Dog Pound are not conducive to a professional and honest discussion. I don't have any respect for posts that allege "fraud" without substantiation, claim that Zicam is a "scam", that the company is a "POS", that the stock "is going DOWN!", that shareholders who take a stand against such BS are "shills", etc. I find these posts to be immature, belligerent, and not conducive to an honest discussion. In addition, Wexler regularly ignores reasonable questions concerning his ridiculous allegations or responds with the {{{{{yawwwwwwwwwnnnnnnnnnn}}}}}} BS. He is not a reasonable person and is impossible to communicate with. If you or anyone wants to have an honest discussion, then please, let's have one. To answer your question about sales this quarter, I had expected Gum Tech to sign an international distribution agreement this quarter. Brown Russell has been in Asia for the past two weeks and is most likely finalizing a deal in several countries. We are nearing the end of the first quarter so it looks like they won't have any international sales this quarter, although I believe that they will have an international distribution agreement done. Since they probably won't have any international sales in the first quarter, I am scaling back my expectations for sales to approximately $7 to $8 million. This would be flat to slightly lower than last quarter. This realization could be part of the reason that the stock declined from 36 to 19; however, I believe that it has now overreacted to the downside. I believe that they will begin international distribution of Zicam in the second quarter. IMO, the current stock price gives nearly zero value to either Gel Tech or the nicotine gum joint venture with Swedish Match. I believe that a conservative fair value for Gum Tech is $32 per share. My calculations follow and I welcome reasonable feedback from anyone. I think that you will find my estimates to be conservative. I used 10 million shares outstanding as this approximates the number of fully diluted shares outstanding. Gel Tech: Sales $50 million, price to sales 5, Gum Tech owns 60%, 10 million shares outstanding ==> 50 x 5 x 0.6 / 10 = $15 Gum Tech / Swedish Match joint venture: Sales $50 million, price to sales 5, Gum Tech owns 49% ==> 50 x 5 x .49 / 10 = $12.25 The rest of Gum Tech: Sales $15 million, price to sales 3, Gum Tech owns 100% ==> 15 x 3 / 10 = $4.5 Total: 15 + 12.25 + 4.5 = $31.75 Assumes that the company announces the expected supply contract for a branded dental gum such as Colgate or Crest. This analysis assigns a value of $16.75 to Gum Tech's gum business (12.25 + 4.5 = $16.75). Gunn Allen analyst Dave Rich assigned a target on GUMM of $24 before he knew about Zicam. I suspect that my estimate is lower than his because this analysis uses a more conservative sales estimate and/or lower price to sales multiple. If you increase the estimate of nicotine gum sales to $80 million, the fair value of Gum Tech's gum business would be $24 with all other things equal and the total value of the company including Gel Tech would be 40. I believe that a p/s of 5 is fair based on the company's growth rate and expected margins for Zicam and nicotine gum. Based on expected sales of Zicam of $75 million, nicotine gum sales of $75 million, and a value for the rest of the gum business of $4.5, the fair value for the stock would be $45. Obviously you can come up with other estimates, but I don't see how anyone can come up with believable estimates that indicate that the stock is overvalued at $19. I welcome your estimates if you think that this is the case. The wild card in the short term is whether the clinical studies that were due in October have been submitted for publication and will be accepted. If this happens, the resulting PR and hype could push the stock well above its fair value in the short term. I believe that the stock could trade to $50 to $60 on such news. Stocks regularly overshoot fair estimates in both directions, and I don't think that this is an unreasonable expectation if Zicam is clinically proven to prevent the common cold, the rhinovirus specific study validates the previous two studies, and both studies are published. If the allergy study comes back positive and is published, it would just be a plus. In addition to my belief that the stock is undervalued, it is also oversold on the daily chart and I think that it will rebound soon. I believe that the stock will trade to 50 to 60 sometime this year for a variety of reasons: expected publication of the clinical studies, higher expected sales than in this post, and discounting of new product announcements that aren't included here. Regards, Dan