Stocks that have a long history of profitability are easy to buy, but you generally have to pay a premium for them. Conversely, stocks that aren't profitable right are usually dirt cheap, but it's tough to justify owning them. Every now and then, though, a stock is in the sweet spot... in between the two. That's AtriCure Inc. (NASDAQ:ATRC) right now - likely undervalued compared to its future, and not terrifying to own based solely on its past.
AtriCure isn't exactly a household name. Though the $141 million medical device maker has been around for a while, its key product isn't something most people see or use... ever. ATRC is the developer of a family of bipolar ablation technology - equipment that leaves minimal scarring with atrial fibrillation treatments.
AtriCure isn't profitable either.... and hasn't been in years; it's not hard to steer clear of such a company. As they say though, that was then, and this is now.
While ATRC may have been booking losses for years, the top line has grown, from $48 million in 2007 to $64 million in 2011. 2012's numbers won't be out until later this month, but for the past four quarters the surgical equipment maker has generated $68 million in sales. The company has also pre-announced that Q4's top line was going to be unusually strong.
During that same period, the loss has also been shrinking, from 2007's loss of about $12 million to 2011's loss of only $5.4 million. Though it's not clear to what extent a big Q4 might whittle that loss down, it is clear that ATRC is inching closer to profitability as the top line grows. It's conceivable (based on the strong-sales notice) that sales could grow enough in 2013 to actually pull the company out of the red and into the black. That's the proverbial sweet spot for a stock... the point where most investors became convinced it's worth owning, and start to buy accordingly.
All that being said, perhaps the most convincing argument in favor of owning ATRC isn't the progress evident on the accounting statement, but rather, the chart and how the rebound here compares to a recent event.
Most of the time when a biotech company raises money (and dilutes the float in the process), the market protests by selling the stock. When AtriCure announced in mid-January it was going to be raising money, it almost seemed to further fan the flames of the budding rebound. It's a sign that investors WANT the company to have more money because investors are confident that it could use that money well, to grow the business.
Sometimes, the simplest hints mean the most.
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