Declan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the main movers this past week has been Cynosure (NASDAQ: CYNO). Cynosure had a relatively low key recovery from its 2009 low, trading very lightly over the course of 2010 and 2011. However, 2012 has been a bit of a bumper time for the stock. The catalyst for the advance was FDA approval for its anti-cellulite product back in January. The injection of buyers helped break the stock from its base and push it on its current run. The stock is currently threatening to break the 2008 pre-crash highs. Going back to the stock's heyday it traded around $45 without its cellulite treatment to support the price, but one step at a time!
Cynosure operates in the Healthcare space; plastic surgery is its core business. The July price surge was driven by Q2 net income profit (compared to a loss the same quarter last year) with revenue boosted 50% after it began selling its laser cellulite treatment system approved back in January. Given this is just the start of the revenue stream for this product there are bright times ahead. The outlook for the quarters ahead also appears good; Account Receivables fell sharply over the course of 2012 and Days Sales Outstanding has dropped from over 50 days to just over 30 in the space of a year; therefore the chance for any sales shenanigans impacting on earnings is reduced.
Because cellulite is so ubiquitous it 'should' be a key market to invest in. The condition has a prevalence of between 85-98% in women. Oddly enough, I couldn't find a commercial value for the cellulite market, but given its prevalence it must be substantial - particularly during the Q3 beach-holiday period. Even amongst the scientific community there is little peer-reviewed literature available on the condition.
As for competitors in the cellulite space, there are about 11 different private and public companies researching and developing in this area.
Cutera (NASDAQ: CUTR) has been languishing in a long standing base since the 2009 low. It's most recent FDA approval was back in 2011 for the treatment of nail fungus, but the laser treatment process hasn't excited investors. A recent CEO statement focused on its R&D spend rather than what existing products were delivering to the bottom line. It's cellulite product only produced a "temporary improvement in the appearance of cellulitic skin where applied."
Palomar Medical Technologies (NASDAQ: PMTI) is another dermatological laser treatment provider. The stock has also struggled of late, suffering a degree of "investor burnout" when it advanced from sub-$1 in 2002 to a high of $50 at the end of 2006. Early cellulitic research conducted in 2004 using Photothermal Therapy only found "mild/moderate improvement" in the condition. The company's agreement with a Johnson & Johnson subsidiary to develop light-based treatments for cellulite was terminated in October 2009 due to "unfavorable economic conditions."
Syneron Medical Ltd (NASDAQ: ELOS) isn't set to report Q2 results until August 15th. The stock's Account Receivables and Days Sales Outstanding is worse than Cynosure's, so the chance for a negative surprise is increased. However, the stock does have a steady history of reporting small quarterly profits and appears better at it than analyst projections! The company does have a cellulite product, VelaSmooth, but in its Q1 summary it didn't appear to be a significant contributor to the company's bottom line.
Maybe your portfolio could do with a Cynosure treatment?
fallond has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Syneron Medical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.