STAAR Surgical Stock: Good addition for risk-averse investors (NASDAQ:STAA)

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Introduction

STAAR Surgical Society (NASDAQ: STAA) is at the top of my watch list; a limit order placed at $65. STAAR Surgical is down more than 50% from its 52-week high, STAAR Surgical is still trading at high valuations. But, with that said, STAAR still has a long streak of growth ahead of it. STAAR is showing an average revenue growth of 20% over 5 years year over year, and future growth is expected to be slightly above 30%. Again, STAAR Surgical is trading at high valuations, with a GAAP P/E TTM close to 140; they are trading nearly 5 times the industry median P/E, which is around 29. That said, the recent FDA approval, an intact market for Visian Collamer (ICL) implantable lens sales in the US , demonstrating the first Visian ICL implants in the US and the demise of Covid make STAAR Surgical a great addition to the watch list of risk averse investors. As their valuation continues to grow or market volatility continues, now may be the time to start averaging the dollar cost or just watch the stock price closely. If you currently own stocks, now is a great time to continue to be patient and not sell.

Some products

Some products (STAAR Surgery)

Background

STAAR Surgical manufactures, designs, develops and markets various implantable ocular lenses. These lenses are intended to provide visual freedom to patients, reducing or eliminating the need for glasses or contact lenses. STAAR Surgical not only developed, but also patented and licensed the collapsible intraocular lens (IOL) which is the first of its kind. To date, STAAR Surgical markets its Evolution in Visual Freedom (EVO) Visian ICL and Visian ICL lenses in more than 75 countries. Additionally, the product has been implanted in more than one million eyes in more than 75 countries. Used to treat hyperopia, myopia and astigmatism, these ICLs are implanted behind the iris and in front of the patient’s natural lens to treat the refractive errors mentioned earlier. The IOL, made from flexible materials, allowed surgeons for the first time to replace the natural lens of a cataract patient with minimally invasive surgery. These collapsible IOLs have become the standard for cataract surgeries around the world. This distinguished them and established them as an innovator and the first mover of its kind.

Different from LASIK, STAAR Surgical’s EVO lenses are placed in a patient’s eye in a relatively quick procedure. Specifically, there is no corneal tissue removal. Additionally, the EVO lens can be removed if desired. The implantation process involves placing the EVO directly into the posterior chamber of the eye. Earlier versions of the Visian ICL lens in the United States were different. They required a preoperative peripheral iridotomy which is now obsolete with EVO. This makes STAAR Surgical the primary disruptor and maximizes patient comfort level. Additionally, STAAR Surgical’s EVO offers a lens-based alternative for refractive errors for those who use glasses or contacts for distance viewing.

Price Target Vs. Current Price

Price targets (Looking for Alpha)

finance

While there are tons of metrics to cover for the last quarter, I’ll highlight some of the numbers that stood out to me. The latest fourth quarter and full year 2021 earnings release showed a 28% increase in net sales from $46 million to $59 million for the fourth quarter of 2021 compared to the same period a year ago. . The increase in sales is the result of ICL sales and unit growth of 33% and 36%. ICL sales accounted for 90% of total net sales for the T421. For the full year 2021, net sales of $230.5 million for the full year increased 41% from $163.5 million a year earlier. For reference, this growth is great looking back from 2019 to 2020. I went back and looked at the full year results for 2020, and STAAR hit record net sales of 163, $5 million. For reference, this was only up 9% from 2019. Again, for the full year of 2021, the sales increase was driven by both ICL sales and the unit growth. The respective results of these are 51% and 48%. It should be noted that ICL sales represented 92% of total net sales in the year 2021. This represents an increase of 87% compared to 2020.

Financial

finance (STAAR surgical site)

The gross profit margin for Q421 was 76.3% compared to the prior year period of 74.6%. Items that impacted gross margin include a mix of ICL sales and geographic sales, as well as increased spending on manufacturing projects. Q421 general and administrative expenses have also increased from $9.5M in 2021 to $11.5M. STAAR says the increase was related to increased compensation expenses, services and facilities costs. With inflation having risen so much, I see the facility expenses and frankly, I’m surprised they aren’t higher. Sales and marketing expenses for the T421 were $17.1 million compared to the prior year quarter of $11.8 million. STAAR also saw an increase of $11.8 million in marketing to $17.1 million in Q421. Due to an increase in advertising and promotional spending, I think the longer-term returns will justify the expense. For fiscal 2022, STAAR Surgical remains on its previously provided guidance of net sales nearing $295 million, representing approximately 28% year-over-year growth. It would also represent another record year for net sales. I believe that with the recent FDA approval, the forward earnings and full year guidance will be raised significantly to reflect a large market in the United States.

Growth and scalability

On March 28, the US FDA approved the STAAR Surgical EVO/EVO+ Visian implantable collamer lens. The EVO is used for the correction of myopia and myopia with astigmatism. Not even 2 weeks later, on April 6, STAAR announced the first EVO ICL implants in the United States. What’s amazing is that business outside of the United States accounted for about 96% of total sales in 2021. In my opinion, FDA approval now opens up a large addressable market that hadn’t yet been included in the title. In the press release of 28and of March, Caren Mason, CEO of STAAR Surgical, said, “Following FDA approval, prospective patients in the United States and their physicians can now consider EVO to achieve visual freedom from limitations, ongoing maintenance and inconveniences associated with eyeglasses and contact lenses.” STAAR Surgical also stated in a recent press release that other EVO ICL procedures have already taken place or will take place in the following states: California, Colorado, Missouri, Texas and Utah. For the first patient to receive the EVO ICL in the United States, the EVO implantation procedure was completed in approximately 7-8 minutes for each eye.

Visual impairments

Visual impairments (The 25th anniversary of laser vision correction in the United States)

According to the National Library of Medicine and National Center for Biotechnology Information article, The 25th Anniversary of Laser Vision Correction in the United States, over the past 25 years, 20 to 25 million eyes have been treated with less than 800,000 eyes treated per year for the past ten years. According to the article, approximately 75% of American adults have a vision problem that requires correction. This is an estimated number of nearly 230 million people. Of the 230 million, about 50% wear glasses and about 14% wear contact lenses. If STAAR can grab 10%, that would equate to 2.3 million people in the United States alone.

Found in the article, Improving Night Vision with the EVO Visian ICL, to date over 800,000 US service members have had successful refractive surgery through the Warfighter Refractive Eye Surgery program or called WRESP. This is an initiative to reduce the limitations and strains caused by wearing corrective eyewear. While the majority of procedures performed were laser surgeries, the ECO Visian ICL is available to the US military, but at select US Army WRSP centers. Most notably related, STAAR’s chief medical officer, Dr. Scott Barnes, saw 3,000 ICL implants under his direction while a colonel at Fort Bragg. If the military advances EVO ICL offerings nationwide, STAAR stands to benefit greatly from this tailwind.

Risks

Some of the risks associated with STAAR Surgical’s business are potential disruptions to their supply chain or changes in expected product demand. Additionally, they noted that in 10-K, raw material supply could be affected due to shortages and impending COVID-19. Additionally, the market price of STAAR Surgical is expected to remain volatile. This could drive investors away. The stock’s closing price ranged from $57 to $162 and declined over the past 18 months. Political and economic conditions consisting of a possible recession, rate fluctuations, COVID-19 and a continuation thereof may continue to weigh on the stock price. Finally, and the most notable is related to the shareholding. STAAR Surgical’s shareholding is concentrated among a few investors. It can affect 3rd acquisition and buyout. Additionally, a larger sell-off from current investors could lead to a larger drop in the stock price. The largest investor owns nearly 18% of the outstanding shares. The four largest investors hold nearly 50% of the outstanding shares. These are all things to keep in mind, but none are major headwinds in my opinion.

Final Thoughts

With stock price volatility and a high PE, it can be discouraging to buy stocks at these levels. Luckily, you can add the stock to your watchlist and buy when it suits your risk/reward level. STAAR has price estimates ranging from $72 per share to $165 per share. With a market cap of $3.4 billion and a high PE, volatility is to be expected. STAAR has already rewarded its shareholders with over 600% return since 2018, and I expect them to return in the next 5 years as well. STAAR Surgical still has a lot to prove before I feel comfortable making it a full-fledged position in my portfolio. However, I am getting closer to pulling the trigger and landing a starting position in the $65-$75 range.

About Marion Alexander

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