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The Short Case For Zeltiq Aesthetics

Bradley Lamensdorf profile picture
Bradley Lamensdorf

The US equity market remains expensive, overbought and speculative. The total capitalization of the equity market hovers near all time high percentages of US GDP. And the P/E ratio of the S&P based on GAAP earnings shows that valuations have only been this high during stock market bubbles.

Compounding the problem is the fact that corporate margins are tracking at 60 year highs. Not only is this "as good as it gets", but any move towards long term average margins will make stocks appear that much more expensive on any earnings basis.

Also, current sentiment is near extremes. The NDR Crowd Sentiment Poll is above 70, evidence that investor sentiment hovers at overly optimistic levels. Margin debt is high, as is the ratio of funds invested in stocks vs. money market assets. Such overoptimism is a bearish contrarian signal.

This enthusiasm has investors piling into the most speculative shares. This can be seen by the returns of companies with high beta, low stock prices or the highest forecast growth rates. The Ranger Equity Bear ETF (ticker: HDGE) is positioned in expensive, lower quality stocks designed to take advantage of a market correction.

We are targeting a hyped-up security which, we believe, has substantial downside. Zeltiq Aesthetic (NASDAQ:ZLTQ) is trading 130% above its 200 day moving average, indicating excessive investor enthusiasm for the stock. In an overvalued market, this stock is very overvalued. We believe expectations will not be met, punishing the stock's price. Here's why:

The hunger to uncover the next Google (GOOG), Apple (AAPL), or Twitter (TWTR) drives investors to speculate on dubious companies and to dismiss the fundamentals. Zeltiq claims to have a fat loss solution that involves no exercise, diet, food supplement or surgery. Management claims their product can 'spot reduce' fat. Too good to be true?

This article was written by

Bradley Lamensdorf profile picture
Brad Lamensdorf, a seasoned money manager started LMTR.com to take advantage multiple market opportunities and provide a resource to investors. He also writes is The Lamensdorf Market Timing Report, a newsletter designed to help investors improve performance via market timing by assessing the environment of the stock market using a variety of technical, fundamental and sentiment-oriented tools from powerful independent research firms. Many investors mechanically enter and depart the market without a true “game plan.” Studies have shown that retail investors, in particular, are very poor market timers, tending to invest at or near market peaks and sell at or near market lows. The newsletter is designed to provide risk parameters for both professional and retail investors around the short-term stock market environment, giving subscribers better insight about when to allocate assets into or out of the equity markets. Lamensdorf, a frequent guest commentator and analyst on major business networks including CNBC, CNN and Fox Business News. Lamensdorf, also has managed investment portfolios for the Hughes family and acted as principal of Tarpon Partners, managing a long/short fund that was up more than tripling the fund over six years. Earlier in his career, he was as an equity trader/market strategist for Taylor and Company, the Bass brothers’ trading arm, co-managing a short-only strategy in a derivative format with notional exposure. He also served as the in-house market timing strategist for the entire internal and external network of Bass managers.

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Comments (9)

Pity you didn't listen back in JAN 26th.
Stock and company is still strong!
We still are very busy with it and still have very happy patients.
I don't my plastic surgeon partners along with our PAs. Patients who otherwise would not do it because of their fear of surgery or their lack of wanting surgery!And by the way the great majority of those patients are extremely happy as proper patient selection is very important.
We now have 4 machines and are Extremely happy with the results. I had it done 18 months ago and I'm still very pleased. Success is based on good patient selection. Many of the patients are ones that would Not have had surgery, therefore they would not be competing for "surgical" dollars. I am invested both in stock and in my patients welfare!
Leland Deane, MD, MBA profile picture
You prove my point. You get a chance to treat areas of the body that you would't get to do surgically, as a facial plastic surgeon, unless of course you do things 'off label'.
botk1973 profile picture
Your analysis all good, except divorced from reality.

From the field, ZLTQ is outselling the next big competitive product, Liposonix, by 14 to 1. The sales is real, and customer is gyrating towards it. Just like Carloswolf.

Short it at your own risk.
mrdanngo profile picture
you forgot to mention another competitor. syneron's (ELOS) ultrashape contouring device is due for approval mid year. It's supposed to be faster and 0 pain compared to the painful freezing method.
PSalerno profile picture
I am skeptic about this product, coolsculpting system, but shorting this stock is dangerous, because it is just 780 million cap and can make big move with a small amount of money.
The only problem with this analysis is that you have not talked to an end-user. As a user and an investor in this company I would tell you the following. We have used over one thousand treatments in the past six months and have a 9o to 95% satisfaction from patients. This is one of the few machines that actually does what it states it does. A significant number of patients would never have had a surgical procedure. The company is very responsive and very helpful in procuring and developing patient relationships. Overall my satisfaction rate with this company is hundred percent. We have been so satisfied that we bought two additional machines bring my total number of machines to four. If other peoples experience is half as good as mine is I see to shorts running for the hills. I have been so impressed that I have invested and own many shares of the stock.
Leland Deane, MD, MBA profile picture
This is rubbish. I own a machine and the results are poor in general. Users do not repeat after they have been fleeced. Plastic surgeons make some money on it but I do not like the way that it competes for 'surgical dollars' that could be well spent otherwise.
Feel free to call or contact me for any info on what it's like to use this machine in real practice.
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