Cover your right eye and look at this earnings release from LCA-Vision (NASDAQ:LCAV) over here. Can you read the bottom line for me, please? What's that? It looks a little blurry? Well, let's see whether we can improve the focus a bit.

Wall Street Wisdom:

  • General consensus. Only five analysts follow LCA. The buy ratings outnumber sells by 4-to-1.
  • Revenues. Analysts believe that in the fourth quarter of 2005, LCA booked more than $46.6 million in revenue, for a 43% increase over the year-ago quarter.
  • Earnings. Back in October, the company raised its earnings guidance for the full year by $0.15 to a range of from $1.40 to $1.45. Factoring that into consideration, analysts now believe the fourth quarter's per-share earnings increased 30% to $0.30.

Margin watch:
LCA's rolling margins have been on a steady upward march over the past 18 months.

Margins %

6/04

9/04

12/04

3/05

6/05

9/05

Gross

46.3

47.9

48.8

50.6

52.0

53.2

Op.

16.3

18.4

19.3

22.7

24.4

25.9

Net

26.1

25.5

25.2

19.6

15.7

16.8

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish forensics:
Although the net-margin line has been falling as gross and operating margins rise, that appears to be due to a couple of tax credits the company received in quarters 1 and 2 of 2004. Those credits inflated the net margins in the past. Their absence, combined with tax payments in more recent quarters, is what creates the appearance of declining net margins.

Valuation metrics:
Assuming that LCA hits the top mark for analysts' estimates, it will net $31.3 million this year. At the current price, the stock therefore trades for 36 times earnings. Although free cash flow outstrips GAAP earnings for this company, the price-to-free cash flow ratio still comes out at a pretty high 32. Now, considering that LCA has grown profits at a compound annual rate of 46% over the past five years, those might be reasonable valuations -- but only if LCA can keep the growth up. The 30% growth that analysts expect to see tomorrow, although great objectively, still makes this stock look expensive relative to its recent growth.

Competitors:
These include NovaMed (NASDAQ:NOVA) and TLC Vision (NASDAQ:TLCV).

Fool contributorRich Smithdoes not own shares of any company named above.