Boston Scientific Corporation (NYSE:BSX) isn’t the most popular stock on Wall Street. In fact, many investors don’t want to have anything to do with it. It would be difficult to blame those investors, considering the company has seen revenue declines for three consecutive years and reported losses in four of the last five. The company’s recent performance hasn’t been much better, reporting losses in three of the last four quarters. Margins are also weak, and the situation doesn’t seem to be getting much better. Yet despite all of these concerns, the stock is up more than 70% over the past year. This makes Boston Scientific Corporation (NYSE:BSX) a mystery, but it’s an easy mystery to solve.
The basic problem
Boston Scientific Corporation (NYSE:BSX) actually has more than one problem, but it all comes down to declining demand and reduced prices for cardiac devices. Boston Scientific Corporation (NYSE:BSX) relies on cardiac devices for approximately half of its revenue. If the company can’t improve in this area, then the top line simply won’t grow.
An inside look
Boston Scientific Corporation (NYSE:BSX) has attempted a solution by acquiring companies that offer products with strong potential. However, the results up until this point in time have been subpar.
This trend of aiming for inorganic growth has also upset the company culture. According to anonymous reviews on Glassdoor.com, employees are frustrated that Boston Scientific Corporation (NYSE:BSX) isn’t retaining its top talent. When Boston Scientific aims for inorganic growth, inside talent becomes less important. So, either these talented employees become part of the now-consistent layoffs for Boston Scientific, or they leave on their own will — often joining a competitor.
Employees seem to desperately want Boston Scientific to focus more on building from within, and to invest in new project developments. It appears as though the leaders of the company are afraid of failure in this area. Of course, fear of failure rarely leads to success. And Boston Scientific is currently in follower mode, which greatly reduces the company’s potential to thrive.
One final point about employees is that many of them seem to agree that middle to upper management is weak, and that the sales force isn’t doing its job. None of these bode well for long-term investors.
Potential
Boston Scientific does have one significant trend working in its favor, which is the enormous growth we’re beginning to see in the 65+ age demographic. As more people enter this age demographic, demand for implantable devices will greatly increase. This might open a big door for Boston Scientific, but competition will be fierce, and Boston Scientific is already one step behind.
Boston Scientific vs. peers
As mentioned in the opening paragraph, Boston Scientific hasn’t performed well on the top or bottom line. The stock may have appreciated due to most stocks throughout the industry rising, many hitting 52-week highs. In many cases, it’s more about the industry than an individual stock. However, once the music stops, only companies with strong fundamentals will have the potential to continue to perform well.
Medtronic, Inc. (NYSE:MDT) recently lost a heart valve patent fight in Germany, but this should be treated as a non-event. If anything, it should be looked at as an opportunity to buy if the stock takes a hit on the news. This news won’t affect more than 0.5% of revenue for the company, and Medtronic, Inc. (NYSE:MDT) has reaffirmed its FY2013 revenue guidance.
Conclusion
Boston Scientific is enjoying strong upward stock momentum, and that definitely has the potential to continue. If you’re looking for a momentum play, then it’s not a bad option. And if you’re a long-term investor that’s looking to side with top-tier management and proven results, then Medtronic, Inc. (NYSE:MDT) should be your best bet.
The article This Momentum Play Might Make You Money originally appeared on Fool.com is written by Dan Moskowitz.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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