Why Zeltiq Aesthetics Inc. Shares Slipped

Zeltiq shares show their ugly side after missing the mark in the first quarter. Are shares now bargain priced after this dip?

Apr 30, 2014 at 3:52PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Zeltiq Aesthetics (NASDAQ:ZLTQ), a medical technology company focused on developing aesthetic therapies using its controlled-cooling technology, dipped as much as 10% after reporting its first-quarter earnings results after the closing bell last night.

So what: For the quarter, Zeltiq announced a 55% increase in revenue to $31 million as it shipped 179 of its controlled-cooling systems compared to just 112 in the previous quarter. In total, the number of cycles performed on these systems increased 83% to 142,317 from the prior year period. Net loss from the previous year dropped 3% to $7.3 million, or $0.20 per share, from $7.5 million, or $0.21 per share. By comparison, Wall Street was anticipating a narrower $0.15 per share loss.

Looking ahead, Zeltiq revised its full-year revenue guidance to the upside with revenue expectations of $137 million to $140 million versus a prior projection of $134 million to $137 million. Its gross profit margin forecast remains unchanged at 70% and its new adjusted EBITDA margin sits at 3%. Wall Street's current projections call for full-year revenue of $136.5 million, so this new guidance appears favorable. However, with new investments in its technology and staff it's difficult to tell if EPS may continue to underperform Wall Street's consensus figures.

Now what: Zeltiq's potential is tied to sales of its CoolSculpting system. I would certainly prefer the company to be profitable, but I believe the investments it's making now are smarter than tightening its spending to produce a profit. As such, while shares have had a huge run and I'd urge caution based on that fact alone, I'd suggest more risk-willing and health-care savvy investors give Zeltiq a closer look as it could be a bargain over the long run.

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