Today’s Daily Alert features a new small-cap recommendation and an update on one of our Top Picks for 2013.
Solta Medical (SLTM)
from The Cheap Investor
Solta Medical is a global leader in the medical aesthetics market providing ... aesthetic energy devices for skin resurfacing and rejuvenation, acne reduction, body contouring and skin tightening, as well as tools and accessories to optimize the latest liposuction techniques. ... The highest price Solta Medical traded was $11 in February, 2007, right after it went public. Now that the price has dropped more than 80%, we think it’s time to recommend Solta Medical.
Insiders own about 25% of the 80 million total shares outstanding, and 94 institutions own 45% of the float (shares in public hands). Institutions sold about 3.3 million more shares than they bought for the quarter ended June 30, 2013. The company has a fair balance sheet with $16.3 million ($0.20 per share) in cash, a book value of $1.69 and total debt of $31 million.
[Solta] recently posted excellent revenues and earnings for the second quarter and six-month periods ended June 30, as shown below.
While these results are very good, they are below the company’s projections, and that’s why Solta Chairman Mark Sieczkarek was not happy. “Our second quarter results were disappointing with revenue below our expectations, attributable in large part to the competitive environment in North America, and the outlook for the remainder of the year was not acceptable to the Board,” Mr. Sieczkarek commented. “North America revenue was negatively impacted by competitive pricing pressures on system sales, especially on Liposonix systems where ASPs fell approximately 25% as we matched the aggressive pricing practices of the competition. ... We remain optimistic about the outlook for the Company given that Solta has one of the broadest and best product lines in the industry as well as a unique business model allowing us to generate the majority of our revenue from high margin recurring tip and disposable sales. ... My focus in the immediate months ahead will be on aggressively altering our sales strategy to reinvigorate our North American systems business. If we execute this strategy, we will be positioned to further enhance growth of our high margin treatment tips and disposables.” ...
Though Solta Medical lowered its projections for the year, it still is expecting a nice increase in revenues and income compared to last year’s results. Revenue for the full year 2013 is now expected to be approximately $165 million, representing year-over-year revenue growth of approximately $20 million, or 14%, compared to full year 2012 revenue of $144.5 million. The company’s previous revenue outlook for 2013 was $180 million.
Non-GAAP operating income is expected to be approximately $10 million for the full year 2013 representing a year-over-year increase of approximately $1.6 million, or 20%, as compared to $8.4 million for full year 2012. The company’s previous non-GAAP operating income outlook was a range of $13 million to $16 million for 2013.
If the company continues to grow its revenues and earnings, the stock has the potential to move at least 50% over the next year. We think Solta Medical could be an acquisition candidate.
Buy Recommendation.
The Cheap Investor, Bill Mathews, www.thecheapinvestor.com, 847-697-5666, November, 2013