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Biotech / Medical : Procept (PRCT): 50% rise on high volume. Why? -- Ignore unavailable to you. Want to Upgrade?

To: Douglas who wrote (279)	11/4/1997 8:16:00 AM
From: Douglas	Read Replies (1) \| Respond to of 455

It seems that Ultrafem may have deep problems (burn rate of $30 million a year!) The Daily Trouble (Archive) Oct 28, 1997 Ultrafem, Inc. (Nasdaq:UFEM - news) Phone: 212-446-1400 Price (10/27/97): $6 HOW DID IT FIND TROUBLE? One of the great stock winners profiled by Peter Lynch in his first book One Up on Wall Street was Tambrands Inc. (recently acquired by Procter & Gamble). When Ultrafem brought its alternative Instead product to market, there was the promise of grabbing significant market share from conventional tampons. The stock rose as high as $36 per share after coming public at $10. Then reality struck in the form of a slower-than-expected ramp up in sales and widening losses that were greater than expected. Short sellers were vocal in their position that this was an overvalued single product company. This combination of poor financial performance and negative perception spelled trouble for Ultrafem shareholders. BUSINESS DESCRIPTION Ultrafem makes feminine products based on SoftCup technology. Its only commercially available product is the Instead product, which is an alternative to tampons and sanitary napkins. The SoftCup technology also shows some promise in contraception and in the prevention of sexually transmitted diseases. FINANCIAL FACTS Income Statement 12-month sales: $3.5 million 12-month income: ($36.7 million) 12-month EPS: ($5.08) Profit Margin: N/A Market Cap: $50 million Balance Sheet Cash: $20.8 million Current Assets: $28.3 million Current Liabilities: $15 million Long-term Debt: $0.7 million Ratios Price-to-earnings: N/A Price-to-sales: 14.3 HOW COULD YOU HAVE SEEN IT COMING? The potential for trouble at Ultrafem was nicely outlined on the Ultrafem message board on America Online. While some product users gave favorable reviews, the availability of the product was questioned and others hinted that the product was not as widely accepted as anticipated. Business Week included the stock on a list of stocks to short last December. A look at Zacks or First Call might have dissuaded a Foolish investor because no analysts project profit for the company for the foreseeable future. A sure road to trouble is to invest in money losing single-product companies. Even an optimist looking at price/sales relationships would have found that the company was trading at over 30 times sales at the beginning of the year. This stock had high-risk written all over it. WHERE TO FROM HERE? First Call earnings estimates expect losses out to fiscal year 1999. The company has missed estimates the past couple of quarters and losses have been even wider than expected. The stock is still priced at over 14 times sales. In addition, the company is burning a lot of cash and has been required to continue to raise capital through the issuance of shares. Ultrafem burned over $30 million in operations last year alone. Even though the stock is selling for only 20% of its peak price, it still isn't cheap by any measure, and the company is still relying on a single product. In this Fool's opinion, there will be ample time to make a buck if the Instead product is a success. Remember, when Peter Lynch found Tambrands, the product had been on the market for almost a decade.