Small-Cap Corner: One For The Dentists

Who likes going to the dentist? Bueller? Bueller? We'll just assume that no one besides dentists themselves enjoy having another person's hands and instruments poke and prod their mouths. Not to mention, dental work can be expensive, but there are a few stocks that can help investors "hedge" and profit from visits to the local tooth doctor. One is a micro-cap company called Biolase Technology BLTI, a maker of lasers and related products focused on technologies for improved applications and procedures in dentistry and in the medical field. First order of business: Biolase will change its ticker to BIOL on May 29. Next it should be acknowledged that the current market environment has been tough on micro-caps and medical device makers, two descriptors that apply directly to Biolase. In the past month, the iShares Dow Jones US Medical Devices Index Fund IHI, an ETF focused primarily on large-cap medical device firms, is off almost 3%. Biolase has been far worse, losing about 12% over the same time period, but there is some upside here. When the company reported its fiscal first-quarter results earlier this month, revenue was seen at $12.3 million, up 17% from $10.6 million a year earlier. Gross profit as a percentage of net revenue was 47.1 percent compared to 45.8 percent for the prior year comparable period and 42.2 percent in the fourth quarter of 2011, the company said in a statement. The company forecast second-quarter revenue of $13-$14 million, implying growth of 7%-16%. California-based Biolase also forecast full-year revenue of $57-$60 million. At $58.5 million, the midpoint of that range, revenue growth would be 36%, giving biolase a growth stock feel. However, it cannot be ignored that Biolase is contending with a patent infringement suit brought against it by CAO Group, which alleges patent infringement involving Biolase's ezlase diode laser, one of the firm's key products. For its part Biolase says CAO abandoned its patent on a comparable product several years ago while maintaining the CAO product "is an inferior product manufactured in China." On that note, legal issues are thorny for all companies and can prove critical in the medical device world. That is to say investors might be concerned about the health of Biolase's financials after dealing with this suit, though that is just speculation at this point and it must be noted the company had $2.8 million in cash at the end of the first quarter. Regarding patents, Biolase has almost 300 issued and pending patents and that may be a sign the company's less than $73 million market cap belies its intrinsic value. The stock can be had for less than $2.40 and could have upside to $3 or higher in the coming months if the broader market proves more cooperative. Put a stop at $2.