Please pardon the newbie question, but I was hoping someone could explain why some stocks are so 'thinly' traded. I understand that the nature of our Hidden Gems makes them largely undiscovered by the larger world and that this is a good thing for us, but I notice huge variances between the activity levels of some picks. FARO seems near the top (understandably with all the press) but CNXS seems so low. For a company with a nationally recognized product line, sound financials and some press coverage it surprises me. AWGI (Alderwoods) I can understand because it seems more 'off the radar'.Anyway - I've rambled enough, but I hope that someone can shed some light.Thank you,Sebastiansarrow
Please pardon the newbie question, but I was hoping someone could explain why some stocks are so 'thinly' traded.I am in the process of reading One Up on Wall Street, and Peter Lynch mentions how he loves boring dependable businesses that produce year after year. They don't get a lot of attention because they aren't sexy. That is kind of how I view CNXS and AWGI, good companies that aren't the hot topic on Wall Street. I for one appreciate companies like this, they seem to be a good fit with the higher profile stocks, and I like the mix of companies in HG. Other than investor psychology, I really don't know, although Tom's picks recently have been the active traders vs. the other stock in the same issue. Maybe Tom has a lot of relatives.-Daniel
The main reason that I liked CNXS is because for one it has a funny or ridiculous product and has over 90% of the share of these (boring) nasal strips. Think about people going round putting these funny strips on their nose. But guess what, I have used them and I like them as it relieves nasal congestion immediately. Like Peter Lynch points out in One Up on Wall Street, invest in a company that institutions are not following and the multiple baggers will follow. CNXS is cash flow positive and is coming out with new products with the CEO following up on her promises ( read the last 3 annual reports )If you folks also remember in One Up on Wall Street, the more ridiculous the product the better it is. Less competition in the future and I think that is why CNXS commands over 90% of the share and is cash flow positive.Looking at the other side of the equation, I read on the web site that the patent on these nasal strips were granted in early 1991. Since the cost is so low and CNXS has effectively warded of competition in the future, how does the patent expiration affect CNXS's revenue? How big is there a threat of this?
Since the cost is so low and CNXS has effectively warded off competition in the future, how does the patent expiration affect CNXS's revenue? How big is there a threat of this?Two thoughts on this:Drugstore.com lists the usual price for 30 strips as being $12. So $0.40 per strip. Granted, I am a penny-pinching tightwad, but I do not consider that to be cheap.Now, addressing your point, whether threat of loss of protection to a product's intellectual property rights is mitigated by the object's having a "low" cost... it is. Case in point. One of the first cases I worked on in my career was a trademark infringement matter. I had a client that manufactured razor blades, and a pirate company of unknown nationality was imitating the packaging of its razor blades, using the same color-scheme on the package and naming their product almost the same (they changed one letter in the name).Now, razor blades are probably at least as cheap to produce as, and retail for prices per item approximating, CNS's Breathe Right strips. Did the client consider the infringement a threat? Yes. The client was furious about the infringement and fought tooth and nail to get the pirated products confiscated, also demanding that all profits from their sale be forfeited to the client. Obviously the client thought there was a threat here from the competing product.And the client was probably right. Say CNS's patent expires in eight years and Suave begins marketing "Suave Strips" (TM) for not $12 a box but $8. If you use Breathe Right and know that Suave Strips are pretty much exactly the same thing, wouldn't you be tempted to save 33%? Like I said, I pinch pennies, and so I would be tempted. There is certainly a risk that this will cut into CNS's sales.Fool on,Ditty
On the other hand, go to any drug store and see the Afrin brand Nasal Spray (similar sort of product) selling next to the CVS/Walgreens generics for twice the price, with the exact same active ingredients. This is something I've noticed in the drug store but nowhere else. In most industries, the commoditization of proprietary products after patent experation is fast. Household cleaning products are a good example... so are personal care products. Within a few years, a $4.50 a bottle cleaner must compete with a half dozen knockoffs from competing brand-name producers and a generic in every grocer store. The price usually falls quickly.But with drugs, this isn't always the case. Take the Afrin example. Other name brands sell competing products, but do so at the same prices. Even the generic are priced only 10-30% lower. Considering that the cost to produce something like Nasal spray is probably less than 25% of the retail cost, this seems surprising.Stil, this threat is very real, although it's also a few years further down the road. If I was to buy CNS, the only reason I could think of to hold on to it for long enough for this to be a problem would be continued earing growth of this caliber over the next 5-7 YEARS! If it's capable of that, it will be a very large player by then, and the stock will have probably returned its price at least once, and probably more like twice. If I had to sell then, even in a local slump, I'd hardly be dissappointed.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |