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Stocks C / CNS, Inc.


Subject:  Re: cns Date:  9/11/2003  2:44 AM
Author:  DejSpin Number:  29 of 132

First off, it's nice to see some activity on this board.

I have been a shareholder of CNXS since it was under $7 earlier this year, and have followed it since Whitney Tilson wrote an article expressing his dislike for the management a few years ago. I thought I could respond to some of the recent posts on this board.

To start off, I would recommend reading the Whitney Tilson article here:

It raises very valid points about management squandering money. (Following the link to the Value Investors Club site is also very worthwhile).

And is also mentioned by Tom Jacobs in this recent article:

Where he estimates the Intrinsic Value of the stock to be between $9.50 and $15.

My comments on the recent posts:

My concern is whether this is a one hit wonder for the company. If so, cash could be burned attempting to bring out new products that do not meet the grade. I also have some concern about growth potential. The US market is presumably saturated since most people are well aware of the product.

This company is sort of a one hit wonder, and it was definitely off squandering money on the Fiber Choice introduction. However, recently, they have smartly decided to focus on introducing products that leverage their key brand name (Breathe Right), and have decided to introduce only 1 new product a year. The recent conference calls reinforce this information. The Fiber Choice product still strikes me as terrible, but they have stated that they will only continue to push the product if it can be profitable.

Also, I would disagree with the US market being saturated. I still think that most Americans think of the strips as being for athletes. It is really a snoring product, and there are most likely millions of snorers that could still benefit from this product.

To my knowledge, J&J does not market nasal strips, and the company is very adept at searching out and buying companies whose products will enhance the value of its own product base. Also, since J&J is already a worldwide company, it would be easier to introduce the product to overseas markets.

J&J does not market these strips (re-read the Whitney Tilson article for more), and I agree that they would seem like a decent takeover target. However, two years ago the management was pretty intent on remaining independent, and I have never heard them backtrack in this regard. It could be a good question for the next conference call.

Additionally, CNS does have some decent overseas sales, and they are continuing to grow. I don't doubt that J&J could force a whole lot more product onto shelves, but CNS is doing a pretty good job.

Lately the advertisement has sorta taken care of themselves as many professional ball players now visibly use the strip on television during games which has really help sell the product to the younger generation.

While I am fine with this happening, in the end, this really isn't a key driver of sales. The snoring market is really where CNS makes its money.

My Take: CNS was a great value below $7. It has good but not great management (they seem to understand what shareholders want from the company now, and are definitely improving). This company is not likely to jump extensively from here barring a buyout. I sold out half of my position just above $10, and would consider selling the rest above $14. I don't see a buyout happening here, because of the feelings I have about the management. I wouldn't buy much at these levels, but I am happy with my purchase so far.

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