From Zacks;
Growth Report September 5th 2003
Volume 3, Issue 67
“Portfolio Update”
Barron’s lays into Biolase…
Last weekend’s issue of Barron’s dated September first included a story titled “Tooth Fairy: Biolase promised no-pain dentistry – but the stock could cause some groans.” In the article, Christopher C. Williams points out that Biolase’s (Nasdaq: BLTIE) shares have risen some 146% in the past year and currently trade at 44-times 2003 consensus earnings estimates, versus a 31.5 multiple for the company’s peer group. Williams also points out that the company’s product is expensive at $50,000, versus $1,000 for a traditional drill. He goes on to mention a lawsuit filed and settled with Biolase in which a New Mexico-based dentist sued the company and its leasing company because they would not take a return of the product after he claimed he was unsatisfied.
It looks to us like someone has it in for Biolase and we found the Barron’s piece to be rather unfair and unbalanced. Instead of comparing the number of satisfied customers to unsatisfied, of which there are very few of, Barron’s cites the sole legal action against Biolase. This skewed reporting is highly suspect for a financial magazine with such a great overall reputation.
The article goes on to detail how large the marketplace continues to be for Biolase. Williams writes, “Although Biolase is the clear leader in the field, having sold some 1,800 Waterlase devices since 1998, fewer than 2% of U.S. dentists have started using laser-related drills of any kind.” This supports are long-time stance that Biolase has tremendous upside potential in an untapped marketplace. The price point of the Waterlase remains high as the company has only sold 1,800 units. It can be assumed that as unit sales increase, the price point will decrease. Further, the company provides leasing options through a partner company, making the Waterlase more easily available to small practice dentists. While the cost remains significant, dentists are able to complete more procedures each day, increasing efficiency, decreasing long-term expenses, and providing patients with the benefits of modern technology, convenience and comfort.
No product is perfect, and no company has 100% customer satisfaction. While there are dentists who are critical of the company’s product, the response from dentists and patients has been largely positive. Yes, shares of Biolase are expensive compared to its peers, but the growth rates justify the high PE in our opinion. Sales and earnings growth projected to be in the 50% plus range is pretty hard to beat.
As we have written in the past, we believe Biolase shares remain attractive at current levels. The long-term growth potential for the company and their Waterlase product remains quite strong. We are pleased that Biolase has resolved its accounting issues. While this will reduce revenue and earnings for prior periods, the company expects the effect of these changes will be offset by a one-time positive impact on third quarter 2003 revenue and earnings, and that there will not be any impact thereafter, because Biolase has now modified the language in question in its purchase order forms to allow revenue recognition upon shipment.
We believe shares of Biolase have been oversold as a reaction to these concerns, and see shares appreciating in the long-term as the company continues to grow and prosper. |
