Why I Bought This $5 Busted IPO That Cramer Is No Longer Touting

| About: ZELTIQ Aesthetics, (ZLTQ)
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I am feeling pretty good this morning as Fossil (NASDAQ:FOSL), a company I bought and profiled yesterday and which just reported stellar earnings, is up is up more than 15% in early trading. Given I am playing on the house's money today, I am going to take a small position in a highly speculative small cap medical technology company, ZELTIQ Aesthetics (NASDAQ:ZLTQ). Pretty much everything that could go wrong with this stock since it had its IPO in the fourth quarter of last year has happened to ZLTG. It has missed the bottom line estimates in each of the three quarters that it has been a public company. In addition, its CFO departed recently after its CEO left earlier in the year. The stock is down some 70% from its highs.

Maybe it is because I live in Miami, the most physically narcissistic city in America (Higher per capita rate of cosmetic surgery procedures for any city in the country), but this cosmetic medical device maker appeals to me. Not only does it have it a great innovative "razor and razor blade" model, but it also rapidly growing revenues and has even better long term prospects. The fact that Cramer is no longer touting the stock like he was in January, comparing it to Intuitive Surgical (NASDAQ:ISRG) when that company was trading in the double digits, and when ZLTQ was trading at $11; makes me feel better about the potential of this stock.

"ZELTIQ Aesthetics is a medical technology company that engages in developing and commercializing non-invasive products for the selective reduction of fat." (Business description from Yahoo Finance).

Eight reasons ZLTG is a solid speculative buy at under $5 a share:

  1. The company has over $50mm in net cash on the balance sheet, which will be more than enough to tide it through to it is in the black (It had negative operating cash flow of a little over $10mm in FY2011).
  2. Director Bryan Roberts picked up another 60,000 shares in early August and now owns 15% of the company.
  3. Sales are increasing at a rapid pace. The company booked $68mm in revenue in FY2011. It is on track for more than $84mm in sales in FY2012 and analysts have it growing to $107mm in revenue in FY2013.
  4. The company sells its CoolScupting machine (The razor) and gets paid for each procedure (the blade). Recurring revenue from procedures have gone from 30% of revenues in 1Q2011 to over 46% of sales in 2Q2012. This recurring percentage will continue to grow as the company increases its installed base
  5. Zeltiq's best growth prospects are ahead of it: A. Its products are only in 1,257 medical offices and it believes the market to be 4,000 to 5,000 offices domestically. B. The procedure is only approved for the flanks of the patient by the FDA. The company is pursuing approval for other areas (Ex, inner arms and chin). C. It is approved for 46 international markets which it has not really begun to touch yet.
  6. The company's machine has a great value proposition for the surgeon. It will break even for the office after 65 procedures. Doing one procedure a day can bring in an additional $500K in revenue at very high margins.
  7. The value proposition is equally compelling for the cosmetic client. The procedure produces no pain and is non-invasive with no recovery time compared to competing procedures. It is also affordable at around $1600 a treatment.
  8. The stock looks like it has technical support in this price range (See Chart)

Disclosure: I am long FOSL, ZLTQ.