During 2023, STAAR Surgical garnered attention due to its steady growth and market share in the eye care industry. As the manufacturer of the EVO ICL Lens, a clear vision solution for nearsightedness, STAAR has been on an upward trajectory.
However, recent declines in sales growth and margins earlier in the year brought challenges. Despite this, a significant rally in shares during the spring indicates renewed investor interest.
EVO ICL Lens: A Clear Vision Solution
STAAR Surgical’s EVO ICL Lens offers a clear vision solution for patients with nearsightedness, eliminating the need for contact lenses or glasses. This implantable Collamer Lens provides sharp and clear sight while avoiding drawbacks such as dry eyes associated with traditional corrective methods.
The lens can benefit many people through a short surgical procedure, presenting an alternative in a market dominated by lenses and glasses.
Founded in the 1980s, STAAR’s growth surged from the 2010s onwards. A $5 stock in 2015 peaked at $150 in 2021, driven by significant advancements in the business. The company’s valuation exceeded $7 billion at its peak, fueled by rapid revenue growth and improved operating margins.
However, as shares returned to reality, trading at $60 early in 2023, the company faced volatility in its revenue guidance, leading to pressure on the shares.
Margin Issues and Market Performance
In the first quarter, STAAR Surgical posted a 16% increase in sales, prompting an upward revision in its revenue guidance. Despite this, GAAP operating profits evaporated to just $3 million.
The second quarter saw a 14% rise in revenues, but the full-year guidance was revised downwards, causing further pressure on the shares. The third quarter saw a modest 6% sales increase, but negative revisions impacted margins, contributing to declining share prices.
By December, shares had fallen to $31, valuing the business at a mere $1.5 billion. The volatility in revenue guidance and margin pressure was concerning, even though the company’s sales multiples were reasonable. The company’s ambitious three-year plans projected 15-20% revenue growth per annum, potentially generating over half a billion in sales by 2026.
However, this optimistic projection required significant earnings growth, making it a compelling long-term investment opportunity.
A Cautious Approach is Needed
Despite the challenges, STAAR Surgical has made strides, with shares falling to the twenties early in the year. The company’s solid track record and potential M&A interest make it a promising investment, even though shares rose to the low fifties in April before settling at $40 per share.
The company’s preliminary fourth-quarter sales and full-year sales guidance indicated modest growth, with shares trading around the lows in February.
The company’s first quarter of 2024 showed a 5% sales increase, but the operating loss of $2.3 million raised concerns. While maintaining its sales guidance, the company increased its EBITDA guidance to $39 million. Despite this, the share price reaction seemed like an overreaction to the reported results.
Future Outlook
Between December and today, shares have seen a 30% increase, rising from $31 to $40 per share, with momentum carrying shares to the fifties in April. The company’s conservative guidance and modest revenue growth projections for the year reflect a cautious approach.
However, with a $2.5 billion equity valuation and a quarter of a billion net cash position, the enterprise valuation of $2.2 billion appears reasonable.
The company’s promise lies in its technology’s potential to disrupt a large market. However, this potential must translate into tangible sales and earnings growth. While the opportunity is significant, the company’s current performance and conservative guidance suggest a need for cautious optimism.
Conclusion
STAAR Surgical has made significant strides with its EVO ICL Lens, offering a promising alternative for nearsightedness. Despite challenges in sales growth and margins, the company’s long-term potential remains intact.
The promise of STAAR’s technology must be realized in tangible sales and earnings growth, making it a watchful investment opportunity. The recent rally in shares reflects renewed investor interest, highlighting the company’s potential for future growth.
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Joel Gbolade is a seasoned financial writer with over seven years of experience in freelance content creation. Specializing in the financial niche and stock market, he has crafted engaging content for numerous websites. His background in technology extends to data processing and computer proficiency, enriching his comprehensive skill set in the financial realm.
