Don't Hold Your Breath for Kensey Nash

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As someone who used to follow rather small and risky med-tech companies, I can tell you from firsthand experience that it's never too late to turn the business around and surprise investors. And KenseyNash (Nasdaq: KNSY) had best start walking through the turnaround door while it's still open.

The device company's second-quarter results strike me as feeble. Total revenue was down 10% as net product sales fell 22% and royalty income rose 13%. On the gross margin line, the company was far less profitable, and operating income reversed into a loss. Even if you add back expenses related to facility transition and equity compensation, Kensey Nash did poorly relative to last year's second quarter.

Frankly, I'm concerned about most aspects of the business. Angio-Seal revenue from St. Jude (NYSE: STJ) was up, but the growth rate keeps shrinking, and now you have Abbott (NYSE: ABT) launching its new StarClose device. Imagine what would happen if Medtronic (NYSE: MDT) and Boston Scientific (NYSE: BSX) get more serious about their respective products.

On the orthopedic side, Kensey Nash still continues to suffer from inventory management at its customers. TriActiv sales were soft compared with the first quarter. While I'll grant that the company has product line extensions coming on that could help sales, the initial ramp of this product has to be seen as disappointing. Last and least, the company put forth guidance for the next quarter that will once again have analysts cutting their estimates.

It's not over for Kensey Nash -- it will soon be seeing revenue from new partners Medtronic and Zimmer (NYSE: ZMH). But the stock's price continues to value this company as a growing med-tech idea. Sure, all companies have their bumps and bruises, and small-cap companies tend to have more than their fair share, but Kensey Nash would interest me only at a discount, and today's price is no discount.

For more med-tech Takes:

• Abbott Wins
• Is St. Jude Next to Be Wooed?
• Kensey Nash Needs to Kick It Up

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).