STAAR Surgical Company: Up 50% This Year; Much More to Come?

Staar stockSTAAR Surgical Company: A Demographics Play

We are all aging…so why not try to make money from it? Yes; the world’s population is rapidly aging. The good news is that this will translate into strong tailwinds for healthcare products and services. Take the case of STAAR Surgical Company (NASDAQ:STAA).

The rapidly growing company develops implantable lenses that are generally in demand by those over 60 years of age. Given the large aging population, STAAR Surgical has great upside to reap the gains.

The chart shows STAA stock launching an impressive V-shaped rally from $23.20 during the March sell-off to above its pre-COVID-19 high.

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Chart courtesy of StockCharts.com

STAAR Surgical stock traded at a record 52-week high of $62.51 in July prior to a small retrenchment, but the stock is rallying to its 50-day moving average. This is supported by a rising relative strength index and a moving average convergence/divergence (MACD) buy.

Impressive Fundamentals Make a Bull Case for STAA Stock

STAAR Surgical Corporation has so far demonstrated a good history of fundamental growth across the board, from revenues to free cash flow (FCF).

Revenues have risen in each of the last five years to a record $150.2 million in 2019, nearly doubling in that span.

Fiscal Year Revenue (Millions) Growth
2015 $77.1 3.00%
2016 $82.4 6.90%
2017 $90.6 9.90%
2018 $124.0 36.80%
2019 $150.2 21.20%

(Source: “STAAR Surgical Company,” MarketWatch, last accessed September 10, 2020.)

But, STAAR Surgical is expected to see a lag this year given the uncertainties of the pandemic when it comes to its global operations.

STAA is expected to see revenues rise only four percent to $156.2 million this year prior to staging a strong 31.6% bounce to $205.6 million in 2021. (Source: “STAAR Surgical Corporation (STAA),” Yahoo! Finance, last accessed September 10, 2020.)

At the same time, STAAR Surgical delivered positive earnings before interest, taxes, depreciation, and amortization (EBITDA) and profits based on generally accepted accounting principles (GAAP) in 2018 and 2019.

Fiscal Year EBITDA (Millions) Growth
2015 -$2.9 44.00%
2016 -$9.7 -232.50%
2017 -$0.3 97.20%
2018 $9.1 3370.40%
2019 $15.6 71.70%

(Source: MarketWatch, op. cit.)

Both the EBITDA and earnings growth were well ahead of revenue growth from 2017 to 2019.

Fiscal Year GAAP Diluted EPS Growth
2015 -$0.17 22.70%
2016 -$0.30 -76.50%
2017 -$0.05 82.60%
2018 $0.11 310.20%
2019 $0.30 172.90%

(Source: MarketWatch, op. cit.)

But as with revenues, STAA is estimated to see earnings fall to $0.05 per diluted share this year, then rally to $0.46 and as high as $0.77 per diluted share in 2021. There is a low estimate of $0.33 per diluted share for 2021. (Source: Yahoo! Finance, op. cit.)

STAAR Surgical has significantly improved FCF in each of the last five years. STAA turned positive FCF from 2017 to 2019.

Fiscal Year FCF (Millions) Growth
2015 -$4.2 65.00%
2016 -$2.2 48.80%
2017 $1.8 183.80%
2018 $10.5 482.30%
2019 $15.7 49.20%

(Source: MarketWatch, op. cit.)

The balance sheet has strong working capital, minimal debt of $7.6 million, and cash of $116.3 million. (Source: Yahoo! Finance, op. cit.) This will provide STAA stock some flexibility during the pandemic without the need to raise capital.

Analyst Take

Institutions love STAAR Surgical stock. About 234 institutions hold 98.6% of the outstanding shares of STAA stock.

STAAR Surgical insiders have also been net buyers over the last six months, adding a net 108,332 shares of STAA stock. (Source: Yahoo! Finance, op. cit.)

While STAAR Surgical Company has recorded some strong gains, I feel there is plenty more to come as the company moves forward.

My bullish thesis for STAAR Surgical stock is simple. An aging global population will drive up the demand for medical services and products, especially as global income levels trend higher.