If you're an investor whose psyche leans more toward the "twitchy" side of the emotional continuum, LCA-Vision (NASDAQ:LCAV) probably isn't the stock for you. Or at a minimum, you should consider laying in a supply of Pepto-Bismol if you buy the stock, because the constant with this one has been lots of growth coupled with lots of volatility.
Of course, good managers should concern themselves with the business at hand -- in this case, laser-vision correction services -- and leave the market to its own devices. And to that end, this was another solid quarter. Revenues grew another 46%, with 35% same-center growth and a 42% overall jump in procedures. Margins did compress a bit, but a large chunk of that seems to be because stock option expense was included.
There was one other culprit in operating margins that also feeds into an interesting point on LCA-Vision's balance sheet. You might notice that the increase from the fourth quarter in doubtful accounts was paltry compared with revenue growth. That's because, according to management at least, it's doing more third-party financing. And while that transfers the risk of default to a third party (General Electric (NYSE:GE) does some of the financing), it does take a little out of margins because the financer gets a cut.
This is a company that I want to be skeptical about, but it seems to be doing the right things. It's building its new centers itself (instead of making dilutive acquisitions like PainCare (AMEX:PRZ)), it's avoiding a lot of bad debt expense, and it's expanding at what would seem to be a very deliberate rate. It also doesn't appear to be pricing itself at the top of the market. And so while the transition to a new CEO is a valid reason for some concern, LCA-Vision seems to be avoiding a lot of the major mistakes that I've seen similar types of businesses make in the past.
Cash flow modeling suggests that this is a pretty expensive stock. By the same token, you don't find a lot of 30%-plus growers that are cash flow positive, pay a dividend, and have a huge, fragmented market left to exploit. So while I'm not putting my own money to work here, I'm always willing to revisit that decision when another of the seemingly inevitable swoons hits this stock.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
