Spectranetics (SPNC)-BUY @ $10.65

SPNC is a medical company that sells laser equipment that helps clear blocked heart arteries, remove pacemaker leads and now can perform procedures to clear blocked leg arteries below the knee.

This last procedure has been helping people that formerly could only look forward to amputation and is what has been fueling SPNC’s recent sales growth.

SPNC has about $1.80 in cash, no debt, is growing sales at a 50% rate and is slightly profitable. Sales this year are expected to reach over $60 million and to be profiable on a non-GAAP basis. Gross margins are in the 70%+ range.

This one defies our normal valuation method as the market value (less cash) is at about 4.5 times revenues which is high–but not for a medical device maker with these margins and propects.

SPNC is also working to get approval to work on arteries above the knee (like Foxhollow-FOXH) which hopefully will come next year. Analysts are guessing at $80 million of revenue next year.

For reference, Luminex, another company with a similar model (sell machines that consume disposable high margin products) had sales of $13.3 million in the last quarter compared to SPNC’s $16 million, has $48 million in cash versus SPNC’s $56 million, has margins in the high 50% range verus 70%, has analyst predicted sales of $70 million next year—sells at 10 times revenues (adjusted for cash on hand).

Lastly, short sellers have been gnawing at SPNC. The stock has been pushed down to the current level from over $13 just recently as short interest has climbed. We think that this could be a $18 stock in the next 6-8 months. We have been in this stock for a long time and think this is a good buying opportunity. BUY.

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