Looking back on the 700 or so pieces I've written for The Motley Fool, I seem to be a bit more forgiving to smaller med-tech companies than to businesses in other industries. Maybe that's because I worked that space as an analyst, and I've seen how a few quarters of turbulence can mask an otherwise promising company.
Be that as it may, I'm starting to run a bit short on patience with Kensey Nash (NASDAQ:KNSY). Although Kensey sports the valuation of a promising and growing med-tech company, there wasn't so much growth in the company's fourth quarter.
Sales were flat over last year as a slight decrease in product sales was offset by growth in royalty income. Confusing matters a bit, there is a discrepancy between as-reported and pro forma numbers. The company booked an accelerated depreciation charge of more than $800,000 related to its transition to a new facility. As reported, operating income fell 22%, while the drop was only 6% on a pro forma basis.
Kensey Nash's cardiology products did pretty well for the quarter. Although TriActiv sales are off to a modest start (a little more than $300,000 this quarter), it will take time to build this product up to its potential. On the other hand, royalty revenue from St. Jude (NYSE:STJ) for the Angio-Seal device climbed 16%, and St. Jude appears committed to continuing to grow this product.
Sports medicine, though, was more problematic. Sales to Arthrex (a distributor of sports medicine products) were down 40% from record year-ago levels, but grew a bit from the third quarter. Elsewhere, product sales to Orthovita (NASDAQ:VITA) were down 52%, but that number is also a bit misleading. End-user sales of the relevant products were still strong, but Orthovita had to adjust inventories.
An investment in Kensey Nash may continue to require an investment in patience as well. Management expects the next two quarters to be challenging, followed by a steeper increase in the second half of the year. That sort of guidance can be risky, and full-year expectations for next year aren't all that robust.
Sooner or later, Kensey Nash needs to stand up and deliver the growth. Investors won't wait forever, and the company sports a price-to-earnings ratio that can only be justified by ongoing growth. I won't pull the shroud over it yet -- the company still has growth potential with its TriActiv device -- but time and patience are both running short.
More mini-med-tech Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
