In some ways, this might be one of those perfect med-tech opportunities.
With NeuroMetrix (Nasdaq: NURO ) and its NC-stat System, you have a device that addresses a large market, is profitable for physicians to use (though not a burden on the health-care system), diagnoses serious problems, can lead to better treatment, and has minimal direct competition. Also, some of the alternatives can be painful and/or time-consuming.
The name of the game here is diagnosing neuropathies -- whether from conditions like carpal tunnel syndrome and lower back pain or diabetic peripheral neuropathy. There are literally millions of candidate patients in each of those segments (to say nothing of other potential add-ons like chemotherapy-induced neuropathy), and at a few hundred bucks per test, this is potentially a billion-dollar market opportunity.
And so far at least, NeuroMetrix is exploiting it pretty expeditiously. Revenue was up 74% this quarter, with 87% of that revenue coming from the disposables side of the business (biosensors). Gross margin improved from an already-good level to more than 75%, and the company was slightly profitable on a GAAP net income basis (though posting an operating loss before subtracting stock compensation expense).
In a lot of ways, this is a story quite similar to Aspect Medical (Nasdaq: ASPM ) , IntuitiveSurgical (Nasdaq: ISRG ) , and perhaps Kyphon (Nasdaq: KYPH ) as well. These are all companies with high-end technology addressing real problems, and not so much in the way of direct competition (though you can argue that point on Kyphon). Also, alas, none of these is what I'd exactly call "cheap."
Having earned my stripes and scars in the med-tech investing world, my inclination is not to chase the stock or pay up. Rather, I'd prefer to wait for one of the freak-outs that seem all but inevitable in this space. Maybe somebody will challenge a patent, or maybe the company will only beat by $1 million when the Street wants $2 million.
The "why" isn't really all that important (assuming that it's something superficial or petty). What's important to me is finding stocks that are both great companies and selling at great prices. Batting .500 may make you a god in baseball, but I think you need to shoot for 100% to have long-term success in the markets.
For more medical mischief:
Intuitive Surgical and Aspect Medical are Motley Fool Rule Breakers recommendations. Take the newsletter dedicated to searching out the best up-and-coming stocks -- high-tech, bio-tech, nanotech, any tech -- for a 30-day free test-drive.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
RSS Headlines
Fool UK