The San Diego-based developer of precision guided therapy tools, including intravascular ultrasound (IVUS) and fractional flow reserve (FFR) products, has achievable sales targets and a favorable valuation, analysts said.
"Our Volcano upgrade is based on three factors: august long-term sales growth targets are likely achievable (if not beatable), a more dedicated approach to margin expansion suggests a meaningful intermediate-term profitability ramp, and favorable valuation," analysts said.
"We sense that Volcano is serious about profitability, assuming 3%, 6% and 9% EBIT margins in 2015, 2016, and 2017, respectively," analysts added.
Separately, 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 several weaknesses, 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, generally high debt management risk and feeble growth in its earnings per share."
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 -$3.67 million or 148.82% 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 1.36 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, VOLC has managed to keep a strong quick ratio of 2.47, which demonstrates the ability to cover short-term cash needs.
- Looking at the price performance of VOLC's shares over the past 12 months, there is not much good news to report: the stock is down 49.08%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier 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.
- VOLCANO CORP's earnings per share declined by 6.7% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, VOLCANO CORP swung to a loss, reporting -$0.63 versus $0.14 in the prior year. This year, the market expects an improvement in earnings (-$0.17 versus -$0.63).
- You can view the full analysis from the report here: VOLC Ratings Report