Under the Radar: Gold Bond Maker Thrives

"Under the Radar" is a daily feature that uncovers little-known companies worthy of investors' consideration. Check in at 5 every morning to find out about stocks that tend to beat their bigger brethren.

Consumer retrenchment is here to stay.

Retail sales rose an estimated 0.6% in June after a 0.5% gain in May. And the national savings rate just hit 6.9%, the highest since 1993. Here's a small-cap consumer-staples company that profits from thrift.

Chattem ( CHTT) makes over-the-counter health care products, toiletries and dietary supplements. The company was founded in 1879 as the Chattanooga Medicine Co. Its first product was a laxative called Black Draught.

Today, Chattem boasts a lineup of indispensable household items, including Gold Bond, Bull Frog and Icy Hot. And its fundamentals compare favorably to twice-named rivals Church & Dwight ( CHD) and Procter & Gamble ( PG). Chattem's second-quarter operating margin widened to 36% and the net margin stretched to 20%. By comparison, Procter & Gamble and Church & Dwight each posted quarterly operating margins near 20% and net margins under 14%.

Chattem's second-quarter revenue ascended 4.4% to $122 million as net income climbed 17% to $24 million and earnings per share increased 19% to $1.26, marking a 10-quarter streak of earnings growth. Domestic sales improved 7%, offsetting a 23% decline in international sales, which was caused by unfavorable currency rates and weaker foreign demand.

The cash balance has more than doubled since last year's second quarter to $29 million. And a quick ratio of 1.9 indicates ample liquidity. However, a $409 million debt load and $5.3 million of quarterly interest expenses are ongoing weaknesses. TheStreet.com Ratings gives Chattem a financial-strength score of 6.43 out of 10, below the "buy"-list average of 7.

Chattem's stock has declined 10% in 2009, underperforming the Dow Jones Industrial Average and the S&P 500. The stock trades at a high price-to-earnings ratio of 17, but is fairly valued when considering its 2010 price-to-earnings ratio of 13. The company doesn't pay dividends, has a market capitalization of around $1.2 billion and a low beta, a measure of stock-market correlation, of 0.3.

TheStreet.com Ratings gives Chattem a "buy" recommendation.

More from Personal Finance

This Should Be Your Retirement Savings Plan When the Stock Market Crashes

This Should Be Your Retirement Savings Plan When the Stock Market Crashes

Former General Electric CEO Jack Welch Has 4 Tips to Getting a Promotion

Former General Electric CEO Jack Welch Has 4 Tips to Getting a Promotion

What Is Neymar's Net Worth?

What Is Neymar's Net Worth?

How to Make a Fortune Like Microsoft Billionaire Founder Bill Gates

How to Make a Fortune Like Microsoft Billionaire Founder Bill Gates

Goldman Sachs' Marcus Service Has What Other Fintech Firms Don't

Goldman Sachs' Marcus Service Has What Other Fintech Firms Don't