Cardiovascular Systems (CSII): A better cardiovascular mousetrap

By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 6/23/14 Sign up for Cabot Wealth Advisory—it’s free!

Excessive buildup of arterial plaque can inhibit the flow of blood in our bodies and cause serious health problems, which are frequently treated (at least partially) with the use of balloon angioplasty and stents.

The trouble with balloon angioplasty is that it doesn’t get rid of plaque; it just compresses it into the artery wall.

Cardiovascular Systems (CSII) has a better mousetrap. The stock is number six on my list of 10 Stocks to Buy and Hold Forever.

Its Orbital Atherectomy System is essentially a Rotor-Rooter that “sands away” arterial calcium, enabling stent deployment in a clean, plaque-free artery.

The clever part of the system is that the abrasive part of the tool is offset from the radial axis, so that as the blood vessel is widened, and the speed of rotation of the tool is increased, centrifugal action causes the abrasive section to revolve in an increasingly wide orbit, effectively scraping plaque from the artery walls.

Plus, the “sanding” action results in very small diameter plaque debris (smaller than both white and red blood cells), which is not the case with some contenders that cut away plaque in big chunks, chunks that can cause trouble (blockage) elsewhere-like your brain. Not good.

Note: this isn’t pie-in-the-sky. Cardiovascular Systems has an established and growing business in the peripheral artery disease (PAD) market today.

Revenues have been growing steadily since 2008; they hit $104 million last year, up 26% from the year before.

But the company is not profitable yet because it’s been investing-and running studies-in the coronary vascular disease market.

And now it’s rolling out its solution, the Diamondback 360 Coronary Orbital Atherectomy Solution.

In the company’s latest quarterly report, released in April, CEO David Martin said, “Our technology is the first and only device specifically approved to treat the complex, severe coronary calcium disease state. We have established our presence at some of the most prestigious institutions in the country, including Mt. Sinai, Columbia Presbyterian and Duke University Hospital, among others. Prominent physicians are achieving excellent procedural success and outcomes consistent with our ORBIT II results in this complicated patient population. This sets the stage for expanded adoption in the future.”

So, the potential for growth is excellent. In fact, analysts increased their earnings estimates for the year ahead after hearing Mr. Martin’s remarks.

But the stock remains in a consolidation phase today, trading above and below its uptrending 200-day moving average. It’s not a leader. But once upon a time it was!

In fact, CSII was originally recommended by Tom Garrity, analyst of Cabot Small- Cap Confidential, at the end of 2012, when it was trading at 12.

And Tom held it all through 2013, as it climbed through the 20s and into the 30s. Finally, Tom and his followers were stopped out when the stock dipped to 25 last month.

A profit of more than 100% in 18 months is fine in my book.

But Tom still thinks highly of the company’s long-term potential, which is why he nominated it for this list of 10 Stocks to Buy & Hold Forever.

The question is, do you just buy here and hold blindly? Or do you subscribe to Tom’s Cabot Small-Cap Confidential and get his latest thinking on all the high-potential, undiscovered stocks he’s recommending?

If you know the value of diversification—and I believe you do—you’ll consider the latter. Click here for more information.