NEW YORK (TheStreet) -- Volcano (VOLC) was gaining 10.2% to $11.34 on heavy trading volume Thursday after Camber Capital Management disclosed a 9.81% stake in the medical device maker.

The investment firm said that it believes shares of Volcano are undervalued, according to the Wall Street Journal. Camber Capital Management added that it may try to have discussions with Volcano's management over business combinations and strategic alternatives.

Camber's disclosure comes days after Engaged Capital called on Volcano to sell itself or hire a new CEO.

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TheStreet Ratings team rates VOLCANO CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate VOLCANO CORP (VOLC) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and generally high debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market, VOLCANO CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $1.07 million or 88.59% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The debt-to-equity ratio of 1.34 is relatively high when compared with the industry average, suggesting a need for better debt level management. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 3.00, which shows the ability to cover short-term cash needs.
  • VOLC's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 53.17%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The gross profit margin for VOLCANO CORP is rather high; currently it is at 68.95%. Regardless of VOLC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VOLC's net profit margin of 0.27% is significantly lower than the industry average.
  • You can view the full analysis from the report here: VOLC Ratings Report

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