STAAR Surgical (STAA 1.59%) has been a top-performing healthcare stock over the past year, with a mouth-watering return of 244%, compared to a 48% rise in the S&P 500 over the same period.
Right now, STAAR Surgical is prohibitively expensive at 33 times revenue and 991 times earnings. Existing shareholders are probably thinking about cashing out at all-time highs. Is this a safe stock for new investors?
Image source: Getty Images.
Why is there so much demand for the stock?
In 1993, STAAR Surgical invented the Implantable Collamer Lens (ICL) for treating nearsightedness and gradual loss of vision due to old age. These lenses are made of polymers and collagens.
Back in 2005, STAAR's implants received approval from the U.S. Food and Drug Administration. Over the years, the company perfected the technology. At the moment, it takes as little as 15 minutes to insert an ICL into a patient's eye after a tiny incision in the cornea and local anesthesia. No stitches are required, and the ICL can be replaced or removed at any time. Patients who undergo the procedure experience excellent vision, with a satisfaction rate of 99.4%.
The process costs about $3,500 per eye, which is more expensive than laser eye correction procedures. However, unlike the latter, there is no risk of permanent eye damage if something goes wrong. Moreover, ICLs are still more cost-efficient than wearing traditional prescription eyeglasses, which can cost patients as much as $25,000 over a lifetime.
The company's ICLs had been selling well until the onset of the COVID-19 pandemic, which caused many patients to defer elective surgeries. Nevertheless, STAAR Surgical still managed to generate $163.5 million in sales for the year, up 9% from 2019. Simultaneously, its net income fell by 58% to $5.9 million.
Is it worth the hype?
So far, the company has only treated about 1 million of the 180 million total eye procedures management estimates are possible. Moreover (possibly due to the technology's complexity) STAAR Surgical has no competitors in the ICL space. Even if alternatives start appearing, it can just improve its existing lens designs and patent them for market exclusivity.
The company devotes 16.8% of its sales each year to research and development for such a purpose. Moreover, it has a huge international presence, selling ICLs in 75 countries worldwide. Hence, its rate of growth is pretty sustainable for the long term.
In the short term, STAAR Surgical should see an explosion in sales as patients who deferred elective procedures return after the pandemic subsides. Indeed, the company predicts at least 25% to 35% revenue growth for 2022.
What's the verdict?
Normally, a stock trading at a valuation this high would be worth staying far away from. However, thanks to STAAR Surgical's monopoly status, huge global presence, and sustainable growth, I would make an exception to that rule: a few shares might be a great addition to your portfolio. Overall, this is a solid growth stock for interested healthcare investors.
