VISX: A Hard Look Found the Flaws

Editor's note: With this column we introduce Whitney Tilson, the founder of Tilson Capital Partners, a New York City-based money management firm. Tilson uses the principles of traditional fundamental analysis to analyze companies in both technology and nontechnology industries. As always, tell us what you think.

Last Thursday, the stock of VISX (VISX Quote) plunged 29%, and has continued to fall. It is now more than 70% off its 52-week high reached only a few months ago. Why did this happen and what can we learn from it?

I had LASIK surgery done on my eyes last September and the results were outstanding (click here to read about my experience). I believe that there will be tremendous growth in the number of people who choose to have this surgery done, so I decided to take a look at the many companies that could benefit from this growth.

To make a long story short, I carefully analyzed VISX but decided not to invest because, while I believe the company will grow quickly, I was not persuaded that its competitive advantages would prove to be enduring -- the most important factor I consider when deciding whether to buy a stock. (Lest you think I am applying 20/20 hindsight to this analysis -- no pun intended -- I posted my reasoning on the VISX message board at Fool.com last September, when the stock was at 94.) ...