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  • Right Time To Buy These Undervalued Medical Equipment Stocks 0 comments
    Dec 30, 2013 7:56 AM | about stocks: PHMD, SLTM, VRX

    Companies in the medical equipment space are often subject to speculation and wild price movements, given the sharp ups and downs associated with the business. However, investors can use this volatility to make discounted entries and lock in long-term gains. PhotoMedex Inc. (NASDAQ: PHMD) and Solta Medical Inc. (NASDAQ: SLTM) are such companies where investors can make use of recent weakness. Here is a closer look.

    PhotoMedex Inc. caters to the retail consumer market through products and services that address skin diseases and conditions, including psoriasis, vitiligo, acne, and photo damage. The company also offers skin health solutions to spa markets, retailers, and online and infomercial outlets. While the company has a great track record of tapping new markets and boosting revenues, it hit a roadblock in the latest quarter during which sales dropped 19 percent to $45.9 million. The sharp decline in top line led to an even sharper reduction in profits which stood at $0.8 million compared to $7.5 million in the same period a year ago. It is no wonder the stock was hammered after the results. However, more than 20 percent cut in price over the last quarter has left the stock valued at a reasonable price earnings multiple of 12.8. The extraordinary drop in revenues stemmed from an operational restructuring at its Japanese distributor and as such, it is not likely to affect PhotoMedex in future. Analysts at Singular Research still have a buy call on the stock with a target of $19.5, a more than 50 percent upside from current level of $12.8. The company doesn't pay dividend, but that shouldn't be a deal breaker as the profits are being ploughed back into the business.

    Quite similarly, shares of Solta Medical Inc. came off from 52-week high level of $2.8 in July after financial results in the last couple of quarters remained below estimates. This is not surprising as the stock still trades at a price earnings ratio running in three digits. The company produces and sells medical device systems for dermatological procedures performed in the physician led, professional assist, and personal care markets. Profitability outlook in coming quarters is still upbeat, which explains the forward price earnings multiple reducing to a more respectable 36.2. After correcting nearly 30 percent from its highest level, the stock is currently available at 21 percent premium to its book value. While ground realities of the business and its poor performance may give the impression of the stock being overvalued, a potential sale of the business to a new owner is likely to trigger value unlocking.

    Note: Valeant Pharmaceuticals International Inc. (NYSE: VRX) concluded an all-cash $250 million acquisition of Solta Medical Inc. on 16 December, 2013.

    Stocks: PHMD, SLTM, VRX
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