You mean there were investors who were shocked that dental laser maker BioLase Technology (NASDAQ:BLTI) reported lower revenue and losses instead of profits? It's not like they didn't warn us of that a month ago.
As BioLase forecast, revenue fell 11% to $15 million and net earnings were actually losses of $0.07 per share. The stock fell too, down as much as 9% at its lowest. At around $6.50 a share, BioLase is selling at little more than half of its 52-week highs. Not that it doesn't deserve the discount, but maybe this is a little overdone.
BioLase has a new distributor agreement with Henry Schein (NASDAQ:HSIC) subsidiary Sullivan-Schein, and a lot of the quarter's problems were said to have been caused by its sales reps training the Schein sales team rather than pounding the pavement selling dental lasers. Of course, that would probably explain the decline in domestic sales, but international sales were also slightly down.
So why is the sell-off an overreaction? BioLase is still the dental laser industry's leader. While its sales declined, the company maintains it did not lose any market share to the competition, which happens to be primarily much smaller companies. Its WaterLase laser is still a strong seller despite the quarter's fall-off -- it represents 74% of all revenues -- and the company has launched a series of disposable components which should provide it with greater revenue diversity in the future. Add in overseas expansion and cost containment initiatives and the rest of the year should come in strong.
That would be in line with management's expectation that the first quarter will be the lowest in revenue for the year, an atypical situation since the second and third quarters are usually the lowest. Investors, therefore, can probably expect 2007 to be generally weak.
For the next few quarters, BioLase says, it will still be training Schein reps, so attention will be diverted from selling, although perhaps not as intensely. It has expanded its distribution agreement in the United Kingdom and will be opening up in Australia and New Zealand. That should serve to complement its operations in Europe and Asia, particularly Korea, which happens to be one of its better-performing foreign markets.
At just 16 times forward earnings, BioLase is trading at significant discounts to aesthetic laser companies like Palomar Medical Technologies (NASDAQ:PMTI) at 26 and Candela (NASDAQ:CLZR) at 28. With expectations particularly low for the dental laser maker, any positive news could easily move the stock to the upside. It seems at this point there is minimal downside risk with potential for gains on the upside.
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Fool contributor Rich Duprey owns shares of Candela but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
