CONSIDER RISKS BEFORE TAKING LEAP

St. Louis-based D&K Healthcare Resources, Inc. with NASDAQ listed common stock (symbol DKWD) that more than doubled in price over the past nine months may still be a good long-term investment. It pays no dividend and has a fairly high P/E, but sales have been growing steadily over the past six years. Some recent negative news had little impact on the price of this stock as it continues a long-term up trend that started around the first of the year.

D&K was founded in 1987 through the purchase of Delta Wholesale Drug, Inc. of Cairo, Illinois, and W. Kelly Company of Lexington, Kentucky. In 1992 it went public with an offering of common stock listed on NASDAQ (National Association of Security Dealers Automated Quotation System). It acquired Northern Drug Company of Duluth, Minnesota in 1994, Krelitz Industries of Minneapolis, Minnesota in 1995, and 50% of Pharmaceutical Buyers, Inc. in 1995. These acquisitions provided D&K with growing earnings from pharmaceutical customers in 19 Midwest and Southern states and warehouse facilities in Cape Girardeau, Lexington, Kentucky, and Minneapolis, Minnesota. Over 100 Heartland residents are employed in the Cape Girardeau facility.

Besides pharmaceuticals, D&K offers a growing array of computer information systems products and services.

The bad news - September 30, 1997, D&K announced the loss of its largest single customer. D&K says this customer accounted for over 35% of accounts receivable while it only accounted for 18% of net sales. That indicates this customer was taking about twice as long as other customers to pay its bills. Such a loss may turn out to be beneficial to D&K's net earnings since this customer's purchases are also said to have yielded a lower than average profit margin.

During October, D&K announced the acquisition of Associated Pharmacies, Inc., a wholesale pharmaceutical distributor. Many of the shareholders of Associated Pharmacies were independent pharmacies in Arkansas who entered multi-year supply agreements with D&K. D&k also announced record sales and earnings for the first quarter of fiscal 1998 in October.

The market seems to be more pleased than concerned because D&K's common stock price did not fall between September 20 and October 27 when the earnings announcement was made. Its stock price has increased from $3 * in December to $8 7/8 Wednesday. That is a 147 percent gain during a period when the S&P500 increased by 26 percent. Regretfully, I do not own any of D&K's stock.

There may still be value in this stock. The market average P/E (price to earning ratio) is about 27 while D&K's is 18. If this stock were priced at the market average, it would be trading for about $13. My research indicates it should be priced around $10*, and the major analysts following this stock are saying it is a strong buy.

Before you leap, you need to consider the risk associated with a stock like D&K's. This is a very small capitalization company with a regional market in a highly competitive and volatile industry. If you are willing to accept this kind of risk, you may be interested in adding D&K to your portfolio.

Before investing, you must recognize the need to hold this stock for the long haul to give J. Hord Armstrong, III (Chairman and Chief Executive Officer) and his team time to follow through with their long-term strategy. That strategy includes increasing productivity in the warehouse facilities, additional acquisitions of regional drug wholesalers, and alliances such as the one with Pharmaceutical Buyers, Inc.

Dividend Reinvestment Plan: No

Web Site: http://www.dkwd.com

Bill Walker is President and CEO of Walkrich Investment Advisors and completes a market appraisal of over 5,000 common stocks each week. (walkrich@mvp.net)

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.