It's generally been a good quarter for aesthetic laser companies. They've been reporting higher sales and profits, and some of the laggards have finally begun showing signs of life on Wall Street.
For example, BiolaseTechnology (NASDAQ:BLTI) reported that even though it expected revenues to be flat, if not down from last year, it expected to be cash flow-neutral from fourth-quarter operations. The stock jumped 12% on the news -- perhaps with good reason.
Biolase's operating cash flow has been in the red for five straight quarters; it's bled almost $20 million over the past two years. The company hasn't been cash-flow neutral -- that is, when cash revenues from operations roughly equal cash expenses -- since the second quarter of 2004. It hasn't been in the black since the fourth quarter of 2003. Investors have a right to cheer.
Yet Biolase isn't alone. The leading aesthetic laser maker Candela (NASDAQ:CLZR), a company I've criticized here severaltimes for its less-than-friendly treatment of shareholders, has been on a tear itself in recent weeks, rising more than 72% over the past quarter. After languishing below $10 a share for most of 2005, the company finally posted some good numbers back in November, and the stock responded in kind.
Fellow laser company Palomar Medical Technologies (NASDAQ:PMTI) has also prospered lately, rising nearly 60% over the past three months, while one-time market darling Cutera (NASDAQ:CUTR) is up about 20%. Still, Cutera faces a mountain of legal problems over its alleged infringement of Palomar's patents -- a case it looks destined to lose -- which has withered the shares from their near double just two months back. Other laser manufacturers haven't fared as well. Laserscope (NASDAQ:LSCP) and SyneronMedical (NASDAQ:ELOS) are both down for the quarter, showing that a rising tide doesn't always lift all boats.
With cost of ownership for aesthetic lasers coming down, expansion to overseas markets holding great potential, and a willing public with extra cash to spend, demand for aesthetic lasers has never been higher. Whether it's for tattoo removal, varicose veins, or teeth whitening, there's a ready market and able practitioners waiting to serve.
Even so, it doesn't mean these companies' stocks are cheap -- quite the opposite. Look at this comparison of each company's enterprise value-to-free cash flow ratios, as well as their price-to-earnings ratios:
|
Company |
EV-FCF |
P/E |
|---|---|---|
|
Biolase |
n/a |
n/a |
|
Candela |
15.7 |
51.4 |
|
Cutera |
29.5 |
36.1 |
|
Syneron |
41.4 |
21.2 |
|
Laserscope |
n/a |
26.9 |
|
Palomar |
63.8 |
42.1 |
Even though Candela might seem potentially attractive on an EV-FCF basis, looking at its P/E would suggest it's pretty richly priced at this time. And despite Biolase's promise for the quarter, it doesn't even register a ratio, since it's still cash flow-negative and has been producing losses.
Lasers have been brightening investors' portfolios for months now. Let's hope there's something beyond the recent run-up to keep them smiling.
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Fool contributor Rich Duprey owns shares of Candela, but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
