Checking Cholesterol

Sometimes, a stock is such a secret that even Wall Street is kept in the dark. Take Cholestech (CTEC ), an up-and-comer in diagnostic testing that has no analyst coverage as yet. More than a defensive play, this may be a chance to get the jump on some promising growth. Cholestech has a device--smaller than a toaster--that measures "good" and "bad" cholesterol, using just a pinprick of blood rather than the usual vial. Results are available at the doctor's office in five minutes, while standard tests require a week's wait.

The shares have soared from 3.68 in March to a 52-week high of 18 on Oct. 3. The jump was powered by record revenues of $12.4 million--up 35% from a year ago--for the fiscal first quarter through June. Profits rose 13% in the same period. A National Institutes of Health announcement of cholesterol-testing guidelines in May also played to Cholestech's strengths.

In April, William Burke, a Bear Stearns investment banking veteran, became chief financial officer--and has talked up Cholestech to institutional investors. "If this is the beginning of institutional inflows and more coverage, it could be a big step," says Mathew Arens of Kopp Investment Advisors, which owns 1.6 million shares, or 13% of the company.

With a new production line, Arens sees 25%-a-year sales growth--which "will definitely translate to earnings"--and he expects the price to double in a year. Arens adds that Cholestech, a micro-cap company at $200 million, may be buyout bait for a medical-device outfit such as Boehringer-Ingelheim or a drugmaker like Pfizer, which already has a $7 million testing contract with Cholestech and a big roster of cholesterol-lowering drugs.

By Mara Der Hovanesian

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