An interesting name in the medical device sector worth a quick look is Cutera Inc. (CUTR). According to the Company’s website, Cutera:
“ … engages in designing, developing, manufacturing, marketing, and servicing laser and other light-based aesthetics systems for practitioners worldwide.”
The company’s products basically allow practitioners to perform hair removal, treat vascular lesions, reduce fine lines/pore size and improve skin texture. It is benefiting/seeks to benefit from the growing trends in and cultural acceptance of cosmetic surgery.
Here is a quick summary trade note:
- Current balance sheet strength: As of September 30, 2010, the company had $97.5 million in cash/marketable securities (1) and no debt – that equates to $7.17 cash per share versus a current share price of $7.00 – this company trades below cash value which basically values their products close to zero.
- Technicals: Cutera currently trades at 4-year lows. Based on price action over the past several months, the shares seem to have hit a floor value of around $7 per share. I would expect, baring any unforeseen negative event, that the shares would not drop much below this level given the cash per share “buffer” – this tends to indicate a decent entry level.
- Sector ripe for consolidation: This sector is balkanized and would benefit massively from scale economies. As such, it seems logical to expect some consolidation in the sector going forward. Other key players in the sector include: Palomar Medical Technologies (PMTI), Syneron Medical Ltd. (ELOS) and Cynosure, Inc. (CYNO).
- Low float/limited liquidity in options: The company has approximately 13 million shares outstanding with an average daily volume of around 60,000 shares (2). Option volume is virtually nil. This obviously makes any trade more costly and harder to execute.
- No clear binary catalyst: I usually like to trade/invest with a clear binary catalyst. This company has no clear forward catalyst – as such, the shares could simply fail to move at all.
- Impact of healthcare legislation unknown: The health insurance landscape is experiencing rapid change. At this juncture, it is uncertain how these changes will impact Cutera going forward.
- Flat past financial performance: The company’s revenues remain flat over the past 9 months and earnings remain negative (although free cash flow was slightly negative) (3). Questions remain whether or not the Company can ramp up sales while containing operating costs.
(1) Source: 3Q’10 10-Q. Includes $1.642 million unrealized loss on $8.325 million notional auction rate securities.
(2) Source: 3Q’10 10-Q and NASDAQ.
(3) Source: 3Q’10 10-Q and November 1, 2010 3Q’10 press release.
Disclosure: Long CUTR via options