Candela Eases the Pain

You're a day late and a dollar short, Candela (Nasdaq: CLZR  ) .

After riding the glory road of its YAG laser for years, the aesthetic laser maker has been late to the game for new innovations in the industry. Only after other laser makers have jumped into the game with a novel product or innovation has Candela been willing to follow. Such caution has always left it behind, losing market share despite protestations to the contrary.

Palomar Medical Technologies (Nasdaq: PMTI  ) is light-years ahead in the field of intense pulsed light lasers; Candela entered this arena only two years ago, and has yet to see much traction in sales. Interchangeable parts were also brought to market by other manufacturers well before Candela decided to enter the fray. Additionally, the company has promised to tackle cellulite, but not much has materialized.

So Candela's announcement that it was buying privately-held Inolase in a $16 million deal made me wonder if the laser maker was simply up to its old games. Would it be coming to market with a new version of last year's technology? My guess is no.

Inolase does not manufacture lasers, but it does make components for lasers that minimize the pain associated with laser treatment. Described as a pneumatic skin-flattening system, Inolase's innovative technology pushes down on the skin, flattening it out in order to confuse the body's nervous system. It's based on the so-called "gate control theory" of pain, which says nerves can feel either pressure or pain, but not both at the same time. The signals for each are sent through a single "gate" to the brain. Applying pressure to the nerve being treated minimizes the pain that is felt when the laser focuses heat energy on the skin, just like when you whack your funny bone and rub your elbow to lessen the pain.

Pain is one of the biggest deterrents to greater widespread use of laser technology. Reducing the amount of pain experienced -- we can't say "eliminating," because, as with "painless dentistry," the sensations are only minimized -- could lead to greater sales of Candela's laser technology. Further, it has the benefit of being a consumable item, which could lead to greater, steadier revenue streams.

Even though I'm a longtime Candela shareholder, I can't yet recommend the stock to others, primarily because of concerns I have with management's veracity, but also because this acquisition won't be accretive to earnings for a long time yet. Although Candela plans to introduce the Inolase products in the fall -- and it's possible it could also license the technology to other laser vendors -- the company itself is not yet profitable. It's essentially an investment in the future, but one that still entails some risk.

With a solid balance sheet and the wherewithal to maintain its announced share buyback program (coupled with a distribution deal with McKesson (NYSE: MCK  ) that should allow it to grow its sales better than it has), this acquisition could be beneficial for long-term growth and long-suffering shareholders.

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Fool contributor Rich Duprey owns shares of Candela. You can see his holdings here. The Motley Fool has a disclosure policy.