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It's Not Too Late to Profit on TearLab

As brittle as my confidence may be in buying stocks as such high levels, I don't see any alternatives on the market to compete with TearLab's system. And even if a product were to emerge today, it would be difficult to unseat the industry gains that TearLab has already won with doctors.

The fact that the company was able to secure almost 400 system orders in the first quarter, growing close to 70% year over year, speaks to the trust that TearLab has established. What this also means is that management now has a problem that every company "cries" for -- fulfillment/backlog challenges, or the ability to service overwhelming demand.

Along similar lines, given the company's ability to maintain/grow margins, while growing market share, I don't see what will stunt TearLab's growth or the stock's momentum. If there are any risks, it's with capital expenditure, which grew 63% in the recent quarter.

While it's not uncommon for small biotech companies to carry high costs, the magnitude in the year-over-year comparison was pretty significant, including 180% jump in sales and marketing expense. This is one of those cases where an investor has to shrug his/her shoulders and take the good with the bad and realize that you can't enjoy 486% revenue growth without spending for it.

I don't believe this changes the story significantly. But at some point, the cash is going to run out. It's worth asking what happens when TEAR is no longer able to spend to grow. The good news is that the TearLab's system serves large population of patients that benefit greatly from the technology.

Plus, the fact that doctors have been able to profit from the system means that TearLab also has plenty of support. Given this scenario, I believe that even with minimal spending, TearLab can still be effective. Besides, the order backlog should provide plenty of revenue to support near-terms cash-flow headwinds - should they arise.

In the meantime, given management's incredible level of execution, I can still see plenty of value in stock despite its already strong year-to-date gains of close to 200%. It wouldn't surprise me to see shares approach the $15 to $20 level some time during the second half of the year.

Lastly, Cramer also said, every once in a while we have to "settle with buying high to selling higher." If it helps, he said this while referencing TearLabs. This time I'm listening.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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