As I’ve written many times, when looking for the leaders of the next advance, you want new stocks–or at least newer names–with strong growth and, preferably, new and revolutionary products. It’s also a good sign if this stock has recently reacted well to its third-quarter earnings report.
Volcano (VOLC) has all of these traits, and that’s why I’m watching it. Here’s what I wrote about it in Cabot Top Ten Report on September 22:
“Volcano is looking to change the practice of ultrasound imaging. Instead of using a wand outside the body, Volcano’s ultrasound catheters allow doctors to see blood vessels (and the plaque that blocks them) from the inside. These catheters don’t just take pictures; they can also distinguish one kind of plaque from another. Volcano sells consoles that display pressure and flow characteristics, then achieves additional revenues from the sale of single-use disposable catheters. At the end of 2007, the company had an installed base of 2,400 intravascular ultrasound (IVUS) consoles and over 800 functional measurement (FM) consoles. That’s not bad for a company founded in 2000. Volcano continues to develop and offer additional functionalities to its products, encouraging upgrades of existing equipment. 2007 was the company’s first profitable year, and earnings are still dodgy. But the small number of institutional owners is hanging tough, indicating some interesting potential. The company has been grabbing market share from Boston Scientific, and that’s expected to continue.”
On Wednesday night, the company reported another great quarter, as it indeed grabbed market share. Revenues were up 40% to $44.1 million, thanks to a 78% jump in IVUS system sales and a 29% leap in IVUS disposable sales. Earnings reached 6 cents a share, well above estimates, and management raised guidance going forward.
To me, the big-picture bullish statistic is that there are 6,000 catheterization labs (examination rooms in hospitals with diagnostic imaging equipment used in catheterization) in the U.S., Europe and Japan, and only 10% or so have IVUS systems. But that figure could jump to 90% within five years! That spells huge, huge opportunity for Volcano. The stock is still base-building, but if the market improves and VOLC can break above 19, it could be a big winner.