Vanity Propels Cynosure Sales to New Heights

May.29.07 | About: Cynosure, Inc. (CYNO)

Who says looks aren't everything. Cynosure (NASDAQ:CYNO), a manufacturer of laser technology specializing in medical and aesthetic treatments, is betting big on vanity and the desire of most of us to look our best.

At last week's Citigroup Healthcare Conference, the company provided positive commentary on the state of its business and its future potential. The $361 million company has seen 98% of its revenues this past year come from new products it has launched the last three years.

Cynosure, which is trading at 30.98, has leading products in the areas of anti-aging, body sculpting, hair removal and vascular lesions. During its presentation, the company heralded the recent launch of a new anti-aging therapy, Affirm, and a body sculpting workstation known as Smartlipo. Both of these new applications are expected to make a large impact in future quarter sales results.

More than 60% of its sales are coming from non-traditional customers such as ob/gyns and primary care physicians, as it continues to find ways to offer treatments and cosmetic options that are not affected by insurance reimbursements or the managed care system. CYNO expects continued growth in this market space because market penetration remains small. This bodes well for CYNO which reported a strong 1Q in 2007 that featured a 52% year-over-year jump in revenues.

Not only are sales rising, but gross operating margins are also improving. This success is attributed to the company rolling out direct distribution for its products by increasing its North American sales force from 7 in 2003 to 60 in 2007. CYNO also started a new modular manufacturing model, which is cutting production and manufacturing costs, considerably.

CYNO stock has been on a tear over the last year, running up nearly 150%. At this price, much of the good news reported by the company last week may be factored in. However, if the new products Affirm and Smartlipo are as big as anticipated, CYNO could see its share price appreciate at least 30% more, as a $500 million market cap would not seem unreasonable for a company capable of doing $150-200 million plus annually in sales.

I believe the company is innovative and becoming a major player in the right space - the cosmetic/aesthetic market. The baby boomers have plenty of cash and the vanity to go with it, which almost ensures that the company's products will be in demand. I will be watching CYNO closely over the next few quarters to see if the new products are gaining traction, as the company's share price performance will likely depend on it.

CYNO 1-yr chart
CYNO 1-yr chart