Those in search of fast money who were able to get in on the IPO of medical-device maker Volcano Corporation (NASDAQ:VOLC) have definitely found success. The IPO has proven to be one of the hottest offerings of the past six months. The company's stock is trading at $14.60, up 83% from an offer price of $8 since going public in mid-June. Only a handful of offerings have performed better over the same time period.
The company develops, manufactures, and commercializes intravascular ultrasound (IVUS) and functional measurement (FM) products that aid in the diagnosis and treatment of vascular and structural heart disease. Volcano has a worldwide installed base of more than 1,400 IVUS consoles and more than 700 FM consoles. The company generated $91.9 million in revenues from the sale of its products in 2005.
So what has led to this IPO's remarkable success? The company's second-quarter numbers have contributed significantly to the price run-up. In August, Volcano reported revenues of $25.9 million for its quarter ended June 30. These revenues represented a 30% increase over its first-quarter revenues and a 9% increase over revenues for its prior-year second quarter. The company's gross profit for the quarter also increased to $14.4 million, versus a gross profit of $11.6 million for the year-ago quarter.
In late August, the FDA also helped this stock by allowing the company to use its new ultrasound capability in General Electric's (NYSE:GE) Innova line of medical imaging systems. The combination of Volcano's ultrasound technology with GE's Innova X-ray catheter-system lab-imaging process will allow radiologists and cardiologists to more definitively identify artery disease and shorten procedure times.
Volcano has an up-and-coming, cutting-edge technology, and it's well-positioned in the market, considering that the company was founded just six years ago. Its technology also stands to benefit from an aging baby-boomer population in the United States, as does the rest of the medical-device industry. "We experienced growth with our IVUS catheters across all of our key geographies, and our results reflect our ability to grow market share and what we believe is the growing adoption of IVUS technology," said Scott Huennekens, Volcano's president and chief executive officer.
I'd consider the company's persistent presence in the red as the biggest risk to its stock price's continued appreciation. Volcano reported a net loss of $4.2 million, or $0.41 per share, for the second quarter, and it projects a net loss of $0.75 per share for its fiscal 2006. The future growth rate for adoption of its IVUS technology also leaves me somewhat uncertain, though I find the FDA approval of its ultrasound technology for GE's Innova line very promising.
For Fools with a high degree of risk tolerance, Volcano presents an interesting investment opportunity. If I were an investor who already owned the stock, I would certainly be holding on to it. As a potential new purchaser of Volcano, I would like to see how the company's next quarter or two unfold. I am intrigued that the company is running a gross profit on its sales.
I also realize that the company's net loss is largely attributable to two factors. First, Volcano recorded a non-recurring, non-cash charge of $1.2 million resulting from the early extinguishment of debt in connection with its initial public offering; and two, it has incurred research & development costs which should benefit future business. While I'm not diving in just yet as a new entrant, I definitely consider Volcano a stock to watch.
Want stock advice so good, your portfolio will erupt? Try Motley Fool Rule Breakers free for 30 days and get a look at the stocks David Gardner and his team have marked for explosive growth.
Fool contributor Billy Fisher does not own shares of any of the companies mentioned. The Fool recommends you tread carefully around its disclosure policy.
