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XMFHelical (< 20)

Underperforming Medical Diagnostic Calls



November 24, 2007 – Comments (1)

Well, life intrudes.  It has been a log time between blogs, but lets try to get back to it.


I had intended to detail-up the companies I selected as part of the HHD ETF breakdown from a previous blog.  I selected LH, MMSI, BLUD, and TECH to outperform and GPRO and IMA to underperform.  There were times when these calls looked bad in the past month (1 for 6 for quite awhile).  Now it looks like a decent group, but tomorrow who knows. 


I'll start with the underperform calls, and then comment on BLUD (hopefully tomorrow), my worst outperform selection.  GPRO and IMA were both highly thought of in CAPS (> 4 stars), but to my mind had gotten ahead of themselves.  Note that I've closed both GPRO and IMA (2X), in the green (but screwed up the GPRO close with only a +4.99).


GPRO is a great company focused on nucleic acid based genetic probes typically used for FISH - fluorescent in-situ hybridization assays and the like (as an old PNA chemist, I know the field pretty well).  FISH is a good way to do bulk detection of pathogens, chromosomal anomalies, and other genetic tests, ideally on samples that are abundant enough to not require PCR.  It works with PCR, but may not be the cheapest and most efficient way to assay if amplification is required.  I expect their market to continue to grow, but can't honestly consider buying the stock at this price. A P/E of over 40 with an earning growth rate only 1/2 that much seems excessive, as does 8.5X sales.  Watch-list until the stock drops to the low 40s (which it may never do).  Certainly not a company I would short in real life and I'm not inclined to bet on further underperformance.  Now if I had just been less quick to end it I would have gotten the accuracy bonus (as Maxwell Smart would say - missed it by " this much).


Inverness Medical (IMA) is also building a nice diagnostic franchise.  But this company just screams serial acquirer, recently outbidding Beckman Coulter for Biosite and also buying Cholestech.  IMA reminds me a lot of Invitrogen a few years back, bought a lot of companies and suddenly found that despite having a strong broad franchise, performance began to stink.  IVGN has since halted major acquisitions and did a nice job on refocusing on performance, and has been rewarded for it.  I think that is what will happen here, but can't say when.  IMA will be a buy after it collapses at some future date.  As for what gives this away as a serial acquirer and thus scares me off an overperform call.  One item that I hate to see is more goodwill ($1.36B) than shareholder equity ($1.30B) on the balance sheet - effectively a negative book value.  Companies don't have to write down goodwill like they used to, but they have to sometime (typically when there is already bad news to report). Also, ROE can indicate a serial acquirer.  IMA hasn't (ever?) had a positive ROE, but with the Biosite acquisition it has gotten worse.


--         TTM         2006        2005    2006

ROE    -17.1%     -2.4%      -4.8%    -6.1%

(yahoo data, not filings, always dangerous for real investing, but suitable for blogs IMO).


I made my first underperform call when IMA was at $58.5 on 10/18, and today it is at $58.89, while the S&P has stunk over that time period.  Stock up, S&P down, yet I've managed to book 2 +5 underperform calls.  Guess this makes me a genius?  If it heads to the low-to-mid 60s again, I'll put another underperform on it.  (and for the CAPS players who hate to see multiple underperform calls booked for accuracy, I suggest they try it with a 4-star stock). I'll make this an outperform one day I think, but not until it is ~40% cheaper than it is today.


Ralph (Zz)

1 Comments – Post Your Own

#1) On November 25, 2007 at 7:04 PM, GS751 (26.91) wrote:

always cool to see people put the numbers togeather for themselves.

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