Five years ago, I quit drinking.
I did so not because I had a problem, but in order to shed some weight. And I was lucky – after I stopped drinking, the pounds just seemed to melt away.
I know most folks aren’t that fortunate. That’s why dieting and exercise in the United States is a $60.5 billion industry.
The party season surrounding Thanksgiving, Christmas and New Year’s is rapidly approaching, and so that weight-watching industry is just as quickly ramping up its marketing.
With that in mind, I found us a way to invest in this huge sector – and also stick with our mission to build wealth through technology.
And this company is in turnaround – setting us up with a “special situation” stock with the potential to double in three years…
The Science of Fat
Please don’t think I’m suggesting you invest in some new diet fad. Far from it.
The technology I want to tell you about involves a breakthrough medical device approved by the U.S. Food and Drug Administration, an agency that is always on the lookout for scams.
In fact, the company I have in mind successfully treated more than 4,000 patients during clinical trials.
It also has published more than 40 medical papers and abstracts on its science, which was developed at a teaching hospital affiliated with Harvard Medical School.
And besides the tens of billions of dollars we spend on weight loss each year, there’s another number that demonstrates how large this company’s market could eventually be.
According to the American Medical Association, more than 75 million Americans are obese. The condition causes a wide range of problems that can lead to premature death, including heart disease or diabetes.
And in addition to the obese, millions more of us are in pretty good shape but would just like drop a few unsightly pounds. I know from experience that it’s hard to get rid of love handles. For women, it’s often the hips or thighs that bedevil them.
These are the kinds of cases tailor made for what’s known as “aesthetic medicine,” a field that includes everything from plastic surgery to liposuction.
Forecasters at BCC Research estimate that aesthetic medicine is growing at an annual compound rate of 7.4% and should hit $4.8 billion by the end of next year.
Clearly, ZELTIQ Aesthetics Inc. (Nasdaq: ZLTQ) and other aesthetic medicine firms have a great opportunity to do well now and in the future. This growing medical tech firm uses controlled cooling to eliminate unwanted body fat in a nonsurgical, minimally invasive procedure known as cryolipolysis.
That’s a mouthful. So let me tell you about it.
Simply stated, ZELTIQ freezes away the fat. The company uses a cooling device to destroy fat cells. The device extracts energy from those cells without damaging other tissue.
Cryolipolysis also has no effect on a patient’s skin, which means minimal recovery time and no sign of treatment.
Over the course of two to four months, the fat cells in the treated areas are gradually eliminated through the body’s normal metabolic processes.
ZELTIQ’s CoolSculpting system consists of a control unit and a number of applicators. ZELTIQ derives most of its revenue from sales of the CoolSculpting system and of the applicators doctors use to treat different sizes and shapes of fat bulges.
Additional sales stem from something the firm calls “cycles.” These are specific-use procedure packs activated with the CoolSculpting machine. A cycle lasts about an hour, and patients typically need two “cycles” to treat for the arms and up to four to treat stomach fat.
If it executes against its plan, ZELTIQ will see a lot of growth. Based on U.S. Census data and its own consumer surveys, the company says it could hit $2 billion in sales over the next few years. In 2013, ZELTIQ had sales of $111.6 million.
ZELTIQ arrived at that $2 billion number after its surveys projected some 4 million Americans would be ready to receive treatment that would require four cycles at $125 each.
Going public in 2010 amid great excitement about its unique technology in a huge market, the company quickly stumbled. It racked up several quarters of losses, putting the stock under pressure.
To capitalize on its potential, ZELTIQ needed a strong corporate turnaround. And that’s just what started happening in 2012 when the board of directors shook up the management team.
Turnaround to Profits
This is the pivotal event in the company’s recent history. I’ve been involved with turnarounds since the early 1980s, and so I know that most of the successful ones require a new visionary leader who surrounds him- or herself with a talented team.
Mark Foley became president and CEO of ZELTIQ in April 2012. He has more than 25 years of experience in the medical device industry, having served as an executive at several fast-growing startups later acquired by global firms.
In fall 2012, Foley brought in new managers to serve as chief technology officer, chief financial officer, head of worldwide sales and marketing and vice president of operations.
Foley also split ZELTIQ’s sales team in two. One sells the CoolSculpting equipment, and the other focuses on selling the supplies. ZELTIQ also holds teaching clinics for aesthetic medicine professionals so they give patients the best results – and lead to more referrals.
It’s all starting to pay off.
In this year’s third quarter, ZELTIQ smashed Wall Street‘s expectations. ZELTIQ was projected to lose 10 cents a share but actually earned 12 cents. Sales climbed 55% to $45.7 million – more than 15% above analysts’ forecasts.
With a market cap of roughly $1 billion, the stock trades at about $27.75. Profit margins and returns on equity remain weak, underscoring that this is a turnaround in progress.
But on the strength of its new strategic plan and recent profits, ZELTIQ is in a rally. It’s up 50% in the past three months and is trading near a new high.
Yet, I still see plenty of upside ahead for this “special situation.” If the company continues growing sales and earnings at anything close to its current rate, the stock could easily double in the next three years.
Of course, special situations like this belong in the higher risk portion of your portfolio.
But it doesn’t take many stocks like ZELTIQ to really boost your net worth.
And during the holiday season, we could all use a little more worth in our pockets.