Re: [CANSLIM] Case Study

From: "Tom Worley" <stkguru@bellsouth.net>
Subject: Re: [CANSLIM] Case Study
Date: Sun, 18 Aug 2002 14:56:18 -0400
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I completely agree, Katherine, Due Diligence should always be a =
necessary part of evaluating a stock prior to entry. On the other hand, =
the SEC filings for 10Q and 10K must also spell out every possible =
hazard and risk, much like a prospectus for an offering. What is not =
mentioned here is that the SEC already investigated its financials, and =
in April closed the investigation recommending no action.=20

So while there does appear to be a lot of smoke here, don't know if =
there is a real fire. I think the confused chart shows that investors =
don't know either, which is reason enough to stay away.

In past filings, they indicated that it was their subsidiary Liberty =
Medical Supply, located in Florida and targeting senior citizens with =
diabetes, as the subject of the investigation. Don't know if it expanded =
to the entire Polymedica corp now.

- ----- Original Message -----=20
From: Katherine Malm=20
To: canslim@lists.xmission.com=20
Sent: Sunday, August 18, 2002 12:12 PM
Subject: [CANSLIM] Case Study


Hi All,

Just thought I'd pass on a recent example that demonstrates the =
following points:

(1) Fundamental screening based on past performance doesn't always "tell =
the tale"
(2) Technicals always lead to the downside
(3) It pays to perform due diligence
(4) Never be tempted to enter a stock while it is still basing

Here are the stats aside from the technical condition:
EPS =3D 92, SMR =3D A, EPS Growth rate (historical) =3D 61%, Composite =
rating =3D 82, ROE =3D 21%, Debt =3D 0%.

Sounds good, doesn't it? Now, take a look at a chart of PLMD.

When you're finished, read this passage excerpted from their 10Q filed =
this week:
Item 13 Under "Notes to Consolidated Financial Statements" (Highlighting =
is mine)=20

. ... The regulations that govern Medicare reimbursement are complex and =
our compliance with those regulations may be reviewed by federal =
agencies, including the Department of Health and Human Services, the =
Department of Justice ("DOJ"), and the Food and Drug Administration =
("FDA"). The U.S. Attorney's Office for the Southern District of =
Florida, with the assistance of the Federal Bureau of Investigation =
("FBI") and Department of Health & Human Services' Office of Inspector =
General ("OIG"), is investigating allegations of healthcare fraud, =
improper revenue recognition and obstruction of justice by PolyMedica. =
Both civil and criminal investigations are being conducted. We are =
cooperating with the investigations. We cannot accurately predict the =
outcome of these proceedings at this time, and have therefore not =
recorded any charges relating to their outcome.=20

We and three individuals who are or were officers are defendants in a =
lawsuit alleging violations of certain sections and rules of the =
Securities Exchange Act of 1934 (the "Exchange Act"). In addition, there =
is a derivative action against the directors and two individuals who are =
or were officers in Massachusetts state court alleging certain breaches =
of fiduciary duty. We, the named individuals, and the Board of Directors =
believe that we have meritorious defenses to the claims made against us =
in the actions in which we are defendants and intend to contest the =
claims vigorously. Although we do not consider an unfavorable outcome to =
the various claims probable, we cannot accurately predict their ultimate =
disposition, and have therefore not recorded any charges related to =
their outcome. An unfavorable outcome could have a material effect on =
our financial position and results of operations. Please see Item 1 of =
Part II, Legal Proceedings, for a more complete description of these =
claims.=20

If any of these investigations results in a determination that we have =
failed to comply with the regulations governing Medicare reimbursement =
or financial reporting or have otherwise committed healthcare fraud or =
securities law violations, we could be subject to delays or loss of =
reimbursement, substantial fines or penalties, and other sanctions. An =
adverse determination could have a material effect on our financial =
position and results of operations.=20

(ref: =
http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=3D0000950135=
- -02-003770)=20

Add to that a sudden resignation of their CEO at the beginning of the =
month.=20

- --Katherine


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<BODY bgColor=3D#ffffff>
<DIV><FONT face=3DArial>I completely agree, Katherine, Due Diligence =
should always=20
be a necessary part of evaluating a stock prior to entry. On the other =
hand, the=20
SEC filings for 10Q and 10K must also spell out every possible hazard =
and risk,=20
much like a prospectus for an offering. What is not mentioned here is =
that the=20
SEC already investigated its financials, and in April closed the =
investigation=20
recommending no action. </FONT></DIV>
<DIV><FONT face=3DArial></FONT>&nbsp;</DIV>
<DIV><FONT face=3DArial>So while there does appear to be a lot of smoke =
here,=20
don't know if there is a real fire. I think the confused chart shows =
that=20
investors don't know either, which is reason enough to stay =
away.</FONT></DIV>
<DIV><FONT face=3DArial></FONT>&nbsp;</DIV>
<DIV><FONT face=3DArial>In past filings, they indicated that it was =
their=20
subsidiary Liberty Medical Supply, located in Florida and targeting =
senior=20
citizens with diabetes, as the subject of the investigation. Don't know =
if it=20
expanded to the entire Polymedica corp now.</FONT></DIV>
<DIV><FONT face=3DArial></FONT>&nbsp;</DIV>
<DIV style=3D"FONT: 10pt arial">----- Original Message -----=20
<DIV style=3D"BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A=20
title=3Dkmalm@earthlink.net =
href=3D"mailto:kmalm@earthlink.net">Katherine Malm</A>=20
</DIV>
<DIV><B>To:</B> <A title=3Dcanslim@lists.xmission.com=20
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
 </DIV>
<DIV><B>Sent:</B> Sunday, August 18, 2002 12:12 PM</DIV>
<DIV><B>Subject:</B> [CANSLIM] Case Study</DIV></DIV>
<DIV><BR></DIV>
<DIV>Hi All,</DIV>
<DIV>&nbsp;</DIV>
<DIV>Just thought I'd pass on a recent example that demonstrates the =
following=20
points:</DIV>
<DIV>&nbsp;</DIV>
<DIV>(1) Fundamental screening based on past performance doesn't always =
"tell=20
the tale"</DIV>
<DIV>(2) Technicals always lead to the downside</DIV>
<DIV>(3) It pays to perform due diligence</DIV>
<DIV>(4) Never be tempted to enter a stock while it is still =
basing</DIV>
<DIV>&nbsp;</DIV>
<DIV>Here are the stats aside from the technical condition:</DIV>
<DIV>EPS =3D 92, SMR =3D A, EPS Growth rate (historical) =3D 61%, =
Composite rating =3D=20
82, ROE =3D 21%, Debt =3D 0%.</DIV>
<DIV>&nbsp;</DIV>
<DIV>Sounds good, doesn't it? Now, take a look at a chart of PLMD.</DIV>
<DIV>&nbsp;</DIV>
<DIV>When you're finished, read this passage excerpted from their 10Q =
filed this=20
week:</DIV>
<DIV>
<P>Item 13 Under "Notes to Consolidated Financial Statements" =
(Highlighting is=20
mine)=20
<P>.&nbsp;... The regulations that govern Medicare reimbursement are =
complex and=20
our compliance with those regulations may be reviewed by federal =
agencies,=20
including the Department of Health and Human Services, the Department of =
Justice=20
("DOJ"), and the Food and Drug Administration ("FDA"). The U.S. =
Attorney's=20
Office for the Southern District of Florida, with the assistance of the =
Federal=20
Bureau of Investigation ("FBI") and Department of Health &amp; Human =
Services'=20
Office of Inspector General ("OIG"), <EM><FONT color=3D#0000ff>is =
investigating=20
allegations of healthcare fraud, improper revenue recognition and =
obstruction of=20
justice by PolyMedica. Both civil and criminal investigations are being=20
conducted.</FONT></EM> We are cooperating with the investigations. We =
cannot=20
accurately predict the outcome of these proceedings at this time, and =
have=20
therefore not recorded any charges relating to their outcome.=20
<P><EM><FONT color=3D#0000ff>We and three individuals who are or were =
officers are=20
defendants in a lawsuit alleging violations of certain sections and =
rules of the=20
Securities Exchange Act of 1934 (the "Exchange Act"). In addition, there =
is a=20
derivative action against the directors and two individuals who are or =
were=20
officers in Massachusetts state court alleging certain breaches of =
fiduciary=20
duty</FONT></EM>. We, the named individuals, and the Board of Directors =
believe=20
that we have meritorious defenses to the claims made against us in the =
actions=20
in which we are defendants and intend to contest the claims vigorously. =
Although=20
we do not consider an unfavorable outcome to the various claims =
probable, we=20
cannot accurately predict their ultimate disposition, and have therefore =
not=20
recorded any charges related to their outcome. An unfavorable outcome =
could have=20
a material effect on our financial position and results of operations. =
Please=20
see Item 1 of Part II, Legal Proceedings, for a more complete =
description of=20
these claims.=20
<P><EM><FONT color=3D#0000ff>If any of these investigations results in a =

determination that we have failed to comply with the regulations =
governing=20
Medicare reimbursement or financial reporting or have otherwise =
committed=20
healthcare fraud or securities law violations, we could be subject to =
delays or=20
loss of reimbursement, substantial fines or penalties, and other =
sanctions. An=20
adverse determination could have a material effect on our financial =
position and=20
results of operations. </FONT></EM>
<P><EM><FONT color=3D#0000ff>(ref: <A=20
href=3D"http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=3D00=
00950135-02-003770">http://www.edgar-online.com/bin/edgardoc/finSys_main.=
asp?dcn=3D0000950135-02-003770</A>)</FONT></EM>=20

<P>Add to that a sudden resignation of their CEO at the beginning of the =
month.=20
<P>--Katherine</P></DIV></BODY></HTML>

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