Sharps Compliance Positioned for Better Future
Sharps Compliance Corporation [[SCOM.OB]] announced that it has joined the Product Stewardship Institute, a national non-profit organization focused on reducing the health and environmental impacts of consumer products. The partnership could provide the medical waste disposal company with opportunities to shape public policy shaping and identify new customers.
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Sharps Compliance provides disposal for medical waste, like hypodermic needles and lancets. The company’s services facilitate compliance with state and federal regulations by tracking, incinerating and documenting the disposal of medical waste. And, demand for these services is only growing with new “green” initiatives at the state and federal levels.
Experts estimate that medical waste disposal is a $1 billion emerging market, and Sharps Compliance benefits from a recurring revenue model with high customer retention. Meanwhile, the company’s strong gross margins of around 40 percent, combined with powerful operating leverage and stable SG&A, only add to the strength of its business model going forward.
Last year, Sharps Compliance earned approximately $1.58 million in net income on $3.36 million in revenues. Meanwhile, the company’s current assets more than doubled its current liabilities, with approximately $2.1 million in cash on its balance sheet. The company’s financial ratios also remain robust with a 46.1 percent return on equity and 26.6 percent return on assets.
Despite the bullish picture, there are many risks associated with Sharps Compliance. The company has been forced to cut its operating margins as it grows (by over 6 percent in 2008), while the majority of its business is dependent on government regulation. The stock also struggles with a high 44x earnings multiple and illiquidity at times on the OTC market.
In the end, Sharps Compliance is a quickly growing business that may deserve such a high premium. Its unique business model positions it extremely well in a growing “green” market. Investors looking for a value play may want to look elsewhere, but those looking for a growth stock that plays off the emerging market for “green” regulation may want to take a closer look.
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