Is Boston Scientific Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Boston Scientific fit the bill? Let's look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Boston Scientific's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's look at Boston Scientific's key statistics:


BSX Total Return Price Chart

BSX Total Return Price data by YCharts

Passing Criteria

3-Year* Change

Grade

Revenue growth >30%

(10.8%)

Fail

Improving profit margin

65.1%

Pass

Free cash flow growth >Net income growth

589.1% vs. 68.9%

Pass

Improving EPS

66.2%

Pass

Stock growth (+ 15%) <EPS growth

84.5% vs. 66.1%

Fail

Source: YCharts.
*Period begins at end of Q2 2010.

BSX Return on Equity Chart

BSX Return on Equity data by YCharts

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(332.7%)

Fail

Declining debt to equity

48.7%

Fail

Source: YCharts.
*Period begins at end of Q2 2010.

How we got here and where we're going
Boston Scientific is in a bit of a rut today, as it's mustered only three out of seven possible passing grades. The company's bottom line, though in a better place than it was three years ago, is still buried in the red. However, free cash flow has grown substantially over the past three years. Will Boston Scientific be able to get back into the black, or is it time to pull the plug on this stock? Let's dig a bit deeper.

This has been one of Boston Scientific's best years in a long time -- its shares are up nearly 90% since the start of 2013. But why? My foolish colleague Dan Carroll notes that Boston Scientific recently got a long-awaited approval from the Food and Drug Administration for its electrophysiology business, which has grown substantially over the past few quarters. The global electrophysiology market is estimated to be worth $2.5 billion, and is growing at a rate of 10% per year. It's only a small piece of the puzzle, and investors don't seem to certain that this is the way forward (shares are down in August), but every little bit of momentum helps.

Boston Scientific's management has also blames weakness in its interventional cardiology and cardiac rhythm management businesses for low overall sales growth in the latest quarter. However, Boston Scientific is forging ahead with clinical trials for optical nerve stimulation treatments for chronic migraines, in conjunction with existing anti-migraine medication. This clinical trial may open enormous opportunities, if it can reach a fairly substantial subset of the population that suffers from chronic migraines.

Boston Scientific has also forged ahead with testing on its WallFlex Biliary RX self-expanding metal stent, has positive data on its Watchman stroke-prevention device, and earned CE Mark approval for its next-generation bio-absorbable stent. Fool contributor Dan Carroll doesn't think that this stent (the Synergy) is a better alternative to Abbott Labs' aptly named Absorb stent, but if it's cost-competitive, safe, and effective, it should still claim a slice of this growing market

Putting the pieces together
Today, Boston Scientific has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Still in the dark about how Obamacare might affect you and your portfolio? The Motley Fool's special report "Everything You Need to Know About Obamacare" takes a 360-degree look at how the law may affect your taxes, health insurance, and investments. Click here to grab your free copy today.

The article Is Boston Scientific Destined for Greatness? originally appeared on Fool.com.

Fool contributor Alex Planes and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum