Greetings Warriors,
Being a relative newcomer here, I’m not sure if this company has ever been discussed. If so, it must have
been determined as unworthy, since it appears to be off the radar of most, at least in the last year.
Late last year, after screening several hundred companies and looking for relatively unknown fast-
growers I ran across ABMD, read what information I could find, liked what I found, and decided to give it
a 5% position in my ports with the intention of learning while holding, which is my most productive
learning method as it tends to keep me focused on my holdings and learning as much as possible. So far,
so good. Since I bought in on 11/29/17, ABMD is up approximately 15%.
Like all my holdings except 1 (FB, IMO) Abiomed isn’t cheap by any metrics except those that factor in
very high growth. So the issue for me is to determine what kind of sales growth the company may
realistically be able to obtain in the near future, and to determine if that rate would support a price
considerably higher than my cost of entry. While I choose not to divulge the assumptions or forecasts
made (a simple exercise anyone can easily perform on their own) I assume it’s obvious that my conclusion
was positive.
Abiomed
In simple terms, Abiomed is a medical device manufacturer that produces a device (“pump” for
us layfolk) that assists the heart of patients with hearts with muscles too weak to maintain a proper
supply of blood flow to the body. The device is implanted inside the patient’s heart and does not
replace the human organ, but assists it when needed.
Selected Financial Items (Percent Change) source: Stock Investor Pro (Reuters)
**Metric. . . . . . . . . 2017 2016 2015 2014**
Sales. . . . . . . . . . . 35.1% 43.1% 25.4% 16.1%
Gross Income. . . . . . . . 34.3% 46.6% 30.1% 15.7%
Research and Development. . 33.3% 38.3% 17.3% 19.9%
Net Income. . . . . . . . . 36.7% -66.5% 1436.5% -50.7%
Shares Outstanding. . . . . 2.5% 3.9% 3.3% 0.6%
Total Cash from Operations. 49.9% 77.4% 84.3% -11.0%
Free Cash Flow per Share. . 6.6% 52.8% 78.0% -12.3%
Accounts Receivable. . . . 26.4% 34.6% 30.3% 6.6%
Inventory. . . . . . . . . 30.7% 58.9% 20.9% -6.7%
Total Assets. . . . . . . . 29.8% 25.3% 64.8% 20.8%
Long-Term Debt*. . . . . . 0.0% 0.0% 0.0% 0.0%
Common Stock Equity. . . . 22.6% 26.5% 73.2% 22.8%
Total Liabilities and Equity 29.8% 25.3% 64.8% 20.8%
Book Value per Share. . . . 19.7% 21.7% 67.8% 21.9%
- LT Debt = 15M (change = 0/0/0/0%)
Rather than write a book about the company, allow me to just list a few relevant points
while trying to balance positive and negative attributes.
Pros
? Market Cap: 9.1b, plenty of room for growth.
? 1-Product Company: Easy to understand, relatively simple accounting.
? Moat: Currently no direct competitors, no known immediate threats to monopoly.
? TAM: 221,000 patients annually (US) and 75,000 (Japan & Germany)**
? Penetration of TAM: 7.0%**
? Qualify for Medicare & Medicaid coverage.
? Product is inserted by catheter rather than open-heart surgery.
? Dilution is reasonable for the industry.
? One of the board members is also an official of United Health.
? Debt is minimal and stable.
** Source: Abiomed
Cons
? 1-product company – if the reputation of the product would be harmed for any reason, the moat
and the company’s company prospects would likely suffer.
? High risk product – Any negative future patient outcomes could threaten viability of the product
and, if serious enough, the company.
? Without new products, the investing opportunity may be of short duration (<5 years?)
? Revenue is non-recurring, although institutional acceptance does lead to repeat sales.
My Personal Conclusion
I believe Abiomed is just beginning to slide into the sweet spot for its niche market. The device is gaining
acceptance by the medical experts as indicated by increasing sales. Profit is rising faster than sales.
Increasing R&D should help maintain quality control and may provide new products. And unfortunately,
our collective heart health does not seem to be improving. Also, when on the receiving end, I do enjoy
the occasional monopoly. I can see a possible near-term path to fast-grower status, little competition
and high risk. Just what the doctor ordered. (So maybe not the high risk, but we’re getting used to it.)
Thoughts & opinions encouraged.
Dan
Disclosure: Long 1 organic heart, 3 cardio stents and a few shares of ABMD
