"LCA-Vision Fourth Quarter 2004 Earnings Soar 92% to 23 Cents Per Share." No, that's not the headline from an analyst's report or a message board posting. Rather, that's the company's headline for its earnings press release. Need you even ask, then, whether the company also talks about "record" profits?
Much as I would like to take management to task over this, the fact is, it has a pretty good reason to boast. Business at LCA-Vision's
On a "same-store" basis, revenues were up 35%. The company, which opened seven new centers in 2004, now has 41 centers in the United States and plans to open at least 10 more this year.
What's more, the company generated about $20 million in free cash flow for 2004 -- nearly triple the previous year's level -- and unlike many growth companies, LCA-Vision actually pays out a dividend.
As strong as the fourth quarter's results were, there is reason for this Fool to think growth can, in fact, continue. Laser vision correction is still an extremely fragmented business, and most of the locations providing the service consist of a single physician or a small independent practice.
By building clinics dedicated only to vision correction, though, LCA-Vision not only can reap efficiencies in purchasing and advertising, but also the quality of the procedure can be improved (there is a strong correlation between procedural success and physician experience). What's more, the company is also looking to add products like a new intraocular lens to help those patients who aren't candidates for laser correction.
Of course there are risks. LCA-Vision isn't the only company with the notion of opening dedicated vision correction centers. Also, the demand for laser vision correction has ebbed and flowed in the past.
While LCA-Vision's ability to take market share away from individual doctors and small practice groups will insulate it from market trends to some extent, a pronounced decline in demand (say, for instance, if there were some sort of health or safety scare) would eventually hurt the business.
Despite the company's rocketing growth and an equally hot stock, valuation isn't too bad. Stripping out a tax benefit in 2004, the trailing price-to-earnings ratio is about 38 and the trailing enterprise value-to-free cash flow is about 23. Given the company's growth, ongoing potential for growth, solid balance sheet, and sound return on equity, maybe management has reason to boast after all.
Fool contributor Stephen Simpson, a chartered financial analyst, has no ownership interest in any stocks mentioned.