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Novadaq Technologies Inc. Message Board

  • andersongordon Mar 2, 2013 3:30 PM Flag

    Analysis of NVDQ: Why Analyst/ Institutions Invested Millions on Friday 3/1/13

    From the two recent Novadaq presentations there were two pieces of information that help define where this company perceives it will be in a year or so.
    1) They now have 10 sales persons for PinPoint, and stated they expect ~$1.0 million or more in revenue 6-9 months out from each salesperson. If you add $10 million in revenue to their current revenue adding in all the additional costs for production, sales and administration, it raises their earnings to ~$0.03 per share in Q4 2013.
    2) They stated growth of revenue in excess of 40% per year for the next years. Using the above assumptions would translate into $0.25 in earnings for 2014. Using a P/E of 46 for companies growing 40% for years into the future, yields a price of $11.33.

    That is what some analyst for some institution also figured out. Given that so far Novadaq has been conservative in their estimates and they have such high upside potential with Pinpoint and the upcoming Luna products, it is a good bet on this company. They paid ~$11.00/share or less for their investment that should be equal to this price in one year and then grow at 40% per year for years. It beat treasury returns (:-)!

    Sentiment: Strong Buy

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    • Your numbers for the next year may be reasonable, but the real revenue/profit picture of this company won't be fully realized for another 3-5 years. There are so many growth drivers in the early stages that a 40% growth rate over the next couple of years is going to be dwarfed by the growth rate 3-5 years out. The adoption rate in their lead indication (breast reconstruction) from one market (open surgery) is still less than 15% - when you get 3-5 years out, you will have multiple indications from multiple markets (open, Firefly, PinPoint and Luna) driving growth, and while it may have taken 3+ years for the adoption rate in breast reconstruction to get where it is, the adoption rate for future indications/markets will be much quicker. The beauty of NVDQ's technology is that it clearly saves hospitals money (by reducing complication rates) and the equipment cost is relatively minor - contrast this with ISRG, whose daVinci equipment costs over $1M upfront and the per surgery accessories are much higher than Spy kits - meanwhile, clinicians are starting to doubt the value of daVinci procedures vs other minimally invasive methods.

      The Citi presentation was the first where I have heard the CEO confidently speculate that the US revenue opportunity is $1B-$2B annually. If 3 years out the path to that $1B revenue run rate has been laid, the market will assign a 2-3 times multiple to that number, which would translate into a $50+ stock price. The wild card in the equation is whether they finally make an effort to market Spy to the rest of the world - hopefully that will be a 2014 initiative, after the PinPoint and Luna launches are behind them?

      • 1 Reply to tredleon
      • Agree with this viewpoint - early going here - revenue growth of 35-40% is great off the small base, but I don't think the #s - esp EBIT - will really go parabolic until 2016-2017 when the tech has become more standardized across # of diff procedures. Firefly is great PR in surgical community, but its a $15-16k box NVDQ sells only to watch ISRG mark it up to $125-150k and NVDQ gets only $100-125 on the consumables - do the math, it will never be huge $ before that 10yr deal lapses perhaps. The real monster opp is in PINPOINT (a $125-150k endoscope) and LUNA as well as other products the co has coming. PINPOINT could actually displace more expensive ops done by DaVinci. Encourage anyone serious to go to Vancouver, B.C. to tour their manufacturing and product dev site.

    • andersongordon
      What individual dollar amount are you assigning to the kits? The razor blade aspect of this company's business model could be the real surprise here. A couple of more quarters of increased usage for breast reconstruction and we could begin to approach the tipping point in which their spy equipment become the standard of care.
      Thanks for the analysis
      regards endo

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