Syneron gets beauty treatment
Commentators, and investors, are beginning to see that the aesthetic medicine device company's warts were temporary.
Shlomo Greenberg
The Motley Fool, a business and investment news site which is targeted at the more intelligent among us yet is still highly popular, recently chose Syneron Medical Ltd. (Nasdaq: ELOS) as its best small cap stock for 2007. And here was I, thinking for a moment that Yokne'am had been abandoned by the wayside. Syneron is certainly one of the best stocks around.
The interesting thing about the review, which was written by Matt Koppenheffer, is that it begins with an explanation about Syneron and why it chose the word ‘ELOS’ as its ticker. This implies that Koppenheffer thinks that Motley Fool’s readers have not heard of the company. “The area of aesthetic tweaking is big business,” he says, “and Syneron hopes to bring that fantasy in a quicker, easier and less painful way.” But then Koppenheffer gets down to the more serious financial data on the company, which leads him to conclude that if things continue at the present pace, the stock will be extremely attractive, even without another big breakthrough in aesthetic devices. This is why he has chosen it as his best small cap stock for 2007.
Articles of this kind on sites like the Motley Fool are of the utmost importance for Israeli companies. There are not many companies that have $160 million in cash, a 43% operating margin, and a historical multiple of 16.6, and this is why Koppenheffer considers Syneron such an attractive stock. What has happened, he thinks, (and I entirely agree with him) is that after peaking at $46, the stock made a sharp drop after it increased its sales and marketing spending, and then missed its earnings per share projections for the fourth quarter of 2005 and first quarter of 2006. In instances such as these, Wall Street hits hard, and does not forgive in a hurry. Koppenheffer believes that Syneron will continue to increase its sales and marketing spending in 2007 but should also start to benefit from the increased spending in 2006. Once Wall Street has forgiven it, the stock will accrue a premium.
Koppenheffer wrote a previous review of Syneron back in February, when the stock fell 40% after peaking at $46.2 in December. He said then that to dump Syneron solely because it posted lower growth over two quarters would not be a wise move. But Wall Street and James Cramer’s loose tongue are stronger than reality. Having tired of Syneron, Cramer switched to another aesthetic treatment stock, and the analysts - whether under the influence of Cramer or not - began to give the company the cold shoulder.
Despite Koppenheffer’s recommendations, Syneron continued to fall over the next five months, and by the end of July it had lost a further 30%. After starting December at $46.2, the company found itself at $19 at the beginning of August. Despite its recent gains, I feel that the current price - $24 - is very attractive (a consensus multiple of 12 for 2007, which is low by any measure, and certainly for a company that is posting renewed growth). But the analysts have remained hesitant. Half of them rate Syneron “Buy” while the other half rate it “Hold.” This is the mindset on Wall Street; it takes time for analysts to recover from their own errors. At the end of November, Doron Gerstel president of Syneron’s North American division, published an update on the company on Wall St.Net. According to Gerstel, things are back to where they were before, and if that is the case then Syneron is indeed one of the top stocks for 2007.
Published by Globes [online], Israel business news - www.globes.co.il - on December 12, 2006
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