BIOLASE, Inc. (BIOL) is a manufacturer and seller of dental laser systems for dental practitioners in the United States and internationally. The stock has soared 95.5% over the past year on account of high demand for the company’s advanced lasers and its launch of specialist academies. 

However, the stock has retreated  33% over the past three months. This price retreat can be attributed to the company’s mixed financial performance in the first quarter. BIOL is currently trading 52.6% below its $1.51, 52-week high, indicating short-term bearishness. Although the company has been investing heavily to develop more advanced dental lasers for endodontists, its bleak fundamentals make its growth prospects uncertain.

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Here is what we think could influence BIOL’s performance in the near term:

Positive Developments                                                                    

On May 6, BIOL launched Waterlase Pediatric Dental Academy to provide pediatric dentists with an immersive training experience to ensure optimal integration of the company’s technology. Since dental lasers are now in high demand, the academy should benefit significantly from the diverse therapies that it offers.

Also, last month, the company formed  a partnership with EdgeEndo, a global leader in commercializing endodontic products, to co-develop EdgePRO, a next-generation microfluidic laser-assisted irrigation device for endodontists. BIOL plans to submit a premarket notification for the device to the FDA sometime this quarter. If approved, this would open new revenue generating prospects for the company.

Favorable Analyst Estimates

A consensus EPS estimate for the current quarter, ending June 2021, indicates a 66.7% improvement year-over-year. Also, analysts expect the company’s EPS to increase 31.2% in its fiscal year 2022. BIOL’s revenue is expected to increase 57% from its  year-ago value to $35.77 million in the current year. In fact, the Street expects the company’s annual revenues to rise 21.4% year-over-year to $43.42 million next year.

Mixed Financials

BIOL’s net revenue increased 70% year-over-year to $8.1 million in the first quarter, ended March 31. Its gross margin rose 500 basis points from its year-ago value to 34%.

However, the company’s adjusted EBITDA loss was $5.3 million, compared to a $3.6 million adjusted EBITDA loss in the first quarter of 2020. Also, its operating loss came in at $6.1 million, compared to an operating loss of $5.4 million in the prior-year quarter. BIOL reported a net loss of $6.9 million and a $0.06 loss per share  over this period.

Weak Profitability

The company’s 29% trailing-12-month gross profit margin  is 47.3% lower than the 54.9% industry average. BIOL’s trailing-12-month levered free cash flow margin and net income margin are negative 18.3% and 67.9%, respectively. Also, its trailing-12-month ROE and ROTC are negative 249% and 27.9%, respectively.

POWR Ratings Reflect Uncertain Prospects

BIOL has an overall C rating, which translates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. BIOL has a B grade for Growth. This justifies analysts’ expectations that its revenue and earnings will increase.

However, in terms of Momentum, it has a grade of C, given its negative price returns over the past three months. It has a C grade for Quality too, which is consistent with the stock’s weak profitability.

Beyond what we’ve highlighted, one can check out additional BIOL ratings for Sentiment, Value and Stability here. BIOL is ranked #123 of 183 stocks in the C-rated Medical – Devices & Equipment industry.

There are several top-rated stocks in the same group. You can access them here.

Bottom Line

BIOL’s specialist academies and innovative product pipeline should help  it to meet the  high demand for dental lasers. However, it could take some time for the company to translate this  into profits. Thus, we think investors should wait for a little more stability in its financials before investing in the stock.

Click here to checkout our Healthcare Sector Report for 2021