Vital Signs?

October 22, 2001: 6:05 p.m. ET

As anthrax panic intensifies, "bioterror plays" are surging. And one small (scary) stock is leading the pack.
By Paul R. La Monica

NEW YORK (CNNmoney) - As the fear of anthrax and smallpox intensified during the past two weeks, most stocks have struggled. Fear, after all, is an extremely powerful emotion. But at least one small group of stocks -- so-called bioterrorism plays -- are thriving (greed, apparently, is a pretty powerful emotion too).

Companies that make anthrax-detection kits and those that are working in vaccines have soared since Sept. 10, the eve of the attacks on the World Trade Center. Some of the names in hot demand include Cepheid (up 257 percent), American Access Technologies (up 153 percent) and Nanogen (up 56 percent). (For more on these companies, see "Investing in bioterror" and "America Freaks Out.")

But one tiny company has beat them all: Vital Living (VLPI: Research, Estimates) , which has surged 1,500 percent, from a measly 11 cents a share on Sept. 10 to $1.76 on Monday.

What's got everyone so excited about a little stock that until this month barely even traded? Vital Living makes a line of water testing kits for the home known as PurTest and on Oct. 15 announced that it had developed a home testing kit for anthrax -- PurTest Anthrax.

The company will be demonstrating the product at a press conference in New York on Oct. 23 and hopes to start shipping it to retailers by the end of November. The kit is expected to retail for between $19 and $25.

Internet chat rooms have been abuzz with rave reviews of the company (or at least the stock) since the anthrax scares started. The Vital Living message board at the investing Web site Raging Bull, for example, features more than 3,000 posts about the company, the vast majority of which have been posted in the past two weeks.

Many of the more bullish comments focused on how much the stock will rise following the Oct. 23 press conference. Several posters also identified the stock as a prime trading opportunity, a stock to move in and out of quickly, explaining perhaps why trading volume has exceeded 1 million shares a day since Oct. 9, peaking at 9.1 million shares on Oct. 18.

Long-term investors, however, should be wary. For one thing, the company had just $400 in cash (that's not a misprint) on its balance sheet as of June 30, 2001, the company's latest filing with the Securities and Exchange Commission. What's more, the company listed assets of $827,606 but liabilities of $2 million. Plus, it has never earned a penny in its 11-year history. Those factors led management to "raise substantial doubt about the Company's ability to continue as a going concern," according to the latest SEC filing.

Donald Podrebarac, Vital Living's CEO, allows that the company has been struggling, but maintains that a turnaround could be on the horizon due to the new anthrax test, which the company rushed into development following the Sept. 11 attacks. "We expect the company to have a substantial increase in orders for the last two months of this year and it would not surprise us if it would drive us to significant profitability," he says. Podrebarac adds that the company recently raised between $700,000 and $800,000 through the completion of a private placement of restricted stock. This, he maintains, should alleviate concerns about cash.

Still, the home anthrax test will need to be a gargantuan success ญญin order to justify the stock's rise. And that is not at all assured. Though Podrebarac says the company has been talking to several retailers about stocking the product, only one so far - Ace Hardware - has signed on. And even if more stores agree to stock the product, there is no guarantee that the test will be a big seller.

Prudent investors should wait to see if the company announces more distribution agreements with major retailers, not to mention whether or not there will even be strong consumer demand for the product, before considering a purchase of the stock.