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The Street Owes Helen of Troy an Apology

NEW YORK (TheStreet) -- With 2013 stock gains of close to 50%, I believe the Street owes the management team at Helen of Troy (HELE) an apology, given the endless complaints about the company's margin leverage and organic growth.

Given Helen's breadth of end-market exposure, which includes housewares, personal care, health care/home segment, water filtration and so on, I do understand analysts concerns regarding organic growth, which measures a company's operational performance using only internal resources and excluding events like acquisitions, is an important metric used to gauge performances of companies that are so well diversified.

It's rare that companies like Helen can enter so many markets without going the mergers and acquisitions route. While there's nothing wrong with that, one acquisition (or two) can add an immediate boosts to the acquirer's revenue performance, making management appear way more competent than they really are.

While I've always maintained a strong bias towards organic growth, in the case of Helen it's been exaggerated and in some instances overblown to downplay the company's performance. When compared to, say, Proctor & Gamble (PG), which is equally well-diversified, I don't believe Helen of Troy's results have swayed that drastically both on an absolute and organic basis.

The other thing analysts conveniently forget is that even though this company is often accused of growing solely by acquisitions, management must still execute. It's one thing to spend billions on a deal. But at the end of the day, the deal must still work from the standpoint of synergies in order for value to be extracted.

On Thursday, the company will report results for its fiscal third-quarter. Management must convince investors that they have a solution to secure more business from not only Proctor & Gamble but also from the likes of Unilever (UL) and Kimberly-Clark (KMB), which have begun to adopt aggressive pricing pressure.

The Street will be looking for $1.09 in earnings per share on revenue of $378.9 million, which would represent revenue growth of (just) 1.1%. But don't let that number fool you. While the revenue result in absolute terms may appear underwhelming, it will also represent sequential growth of close to 20%. And that was from a strong October quarter that yielded record revenue of $320 million.

Given the Street's unyielding position about competitive pressures, Investors should also focus more on Helen's segmental performances. This is where I've become convinced that the company does have a well-structured operation that is suited to fight off these sort of attacks, as perceived as they may be.

Now, I don't want to downplay the capabilities of Proctor & Gamble or Unilever, which have posted performance I believe are equally impressive. But with Helen of Troy having posted growth in every business segment last quarter, including 20% growth in the Healthcare/Home Environment segment, I struggle to find the dents from all of these attacks.

Equally impressive was that despite what continues to be a challenging retail environment, not to mention aggressive pricing from Newell Rubbermaid (NWL), the fact that Helen's management expanded the Personal Care segment by more than 3% suggests how strongly differentiated Helen's products are.

Something else I've noticed: Contrary to the Street's views, there continues to be evidence of market-share gains against these same rivals that are said to be adding such immense pressure. While it's true margins remain an overhang, that's also the case with several rivals given the across-the-board increases in product costs and impacts of foreign currency exchange rates.

I do realize I've shaken the pompoms a little bit for this company. But I won't apologize for it -- not when management produced stock returns of close to 50% when all the Street did was complain about their decisions and the company's exposure to China.

All told, Helen of Troy remains a well-managed company with some of the world's most recognized brands. I believe management's deals to grow the company's market position will eventually pay off. With the stock trading at around $48 per share, Helen of Troy presents excellent value for investors looking to play the global economic recovery.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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