Wednesday, January 21, 2009

Fishing at the Bottom of the Barrel: Buy of 100 Solta Medical

I had some cash come into the Roth so far this month so I just put it to use by buying 100 shares of Solta Medical at $1.35, a speculative issue.  The company was formerly known as Thermage and this is the link to its most recent 10-Q.Form 10-Q  I remember last year that Thermage received a takeover offer but refused to consider it and I do not believe it was submitted to the shareholders.  Instead, the Board and management elected to proceed with its acquisition of a company called Reliant for 25 million in cash and 23.6 million of Thermage's shares.  The acquisition of Reliant was completed in December 2008. Form 8-K  Thereafter Thermage changed its name to Solta Medical.Yahoo! Finance
Solta claims that the merger combines the industries two leading brands in aesthetic energy devices, Thermage and  Fraxel. 

The only analyst report that I know about is the one from Morningstar which currently has Solta rated five stars with a $5 fair value estimate.  Both Reliant and the old Thermage were operating at small losses in the 3rd quarter of 2008 but Reliant did post sales growth of 22%.  The company has invented devices that utilize radiofrequency to heat and shrink wrinkles.  The company sells equipment, a RF generator which had an installed base of about 2400 according to Morningstar.  The company hopes to make money by selling applicator tips for each procedure done by the plastic surgeon.  There are different tips for each different application.  The company is still using about 50 salesman to reach all of the plastic surgeons in the country which is apparently a slow process for this young company.  Morningstar says it needs to place another 900  generators to achieve consistent profitability.  I would expect that, once most plastic surgeons and dermatologists have been pitched, the company could cut back on the number of sales personnel.   In 2/07, the company introduced a new ThermaCool NXT generator and sold 491 of those systems before the end of its 3rd quarter (10-q a p. 14).

A more detailed description of the RF process is contained in its annual report. Form 10-K

The consensus estimate by the analysts does show a profit for 2009 which would be an achievement for this small company. SLTM: Analyst Estimates for Solta Medical, Inc - Yahoo! Finance
Although a lot of its cash was used for the Reliant acquisition, the company should still have some cash, with the exact amount at the end of the 4th quarter being disclosed at the time of its next earnings release. SLTM: Balance Sheet for Solta Medical, Inc - Yahoo! Finance
The total for the cash and short term investments balances shown in Yahoo Finance at the end of the 3rd quarter was 45.92.  At a minimum the 25 million used to acquire Reliant has to be subtracted from that figure.   The market cap shown for the company is stated to be close to 33 million in Yahoo Finance but I suspect that may be a wrong figure in failing to take into account the additional shares issued to Reliant shareholders. 

Some of the risks are detailed in the recent 10-q and 10-K.  These procedures performed by Solta's devices are elective and are probably being reduced in the current economic climate.  It was very close to a dollar to dollar match between the cash received so far this month in the Roth IRA and the amount used to fund this speculative purchase of 100 shares.  I would not risk more on this issue.  


  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

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