Management was fairly vague with its language, stating that certain revenues “should not have been recognized or should not have been recognized during the periods in which they were recognized.” The company stated that it expects to report “one or more material weaknesses in the company’s internal control over financial reporting.” That kind of ominous uncertainty is yet another reason not to own shares of Orthofix International NV (NASDAQ:OFIX), which have already plunged 46% over the past twelve months.
Orthofix International NV (NASDAQ:OFIX) was not always such a weak stock. The company’s top and bottom line growth was robust up to the first half of 2011, but have since declined quarter after quarter. This means that a restatement of Orthofix’s revenue might reveal that revenue growth over the past two years — which was already dismal — could actually have been even weaker than initially reported. Last quarter, Orthofix continued its two-year losing streak with an 82.4% plunge in earnings accompanied by a 13.6% decline in revenue.
Investors still love these two stocks
Out of these three companies, the only viable investment is Stryker, which competes primarily against Zimmer Holdings, Inc. (NYSE:ZMH). Zimmer Holdings, Inc. (NYSE:ZMH) competes directly against Stryker in spinal implants, trauma devices, and reconstructive orthopedic products. Last quarter, Zimmer’s earnings fell 29.1% as its revenue inched up 4%, which is comparable to Stryker’s top and bottom line growth. Yet, Zimmer is fundamentally cheaper than Stryker, trading at 13 times forward earnings in comparison to Stryker’s forward P/E of 15.
However, Zimmer Holdings, Inc. (NYSE:ZMH) was recently ordered to pay Stryker $210 million for infringing on surgical irrigation patents, used in orthopedic pulsed lavage devices used to clean wounds during surgery. Zimmer was also hit by recalls regarding its spinal implants.
A Foolish final thought
Although investors seem fairly bullish regarding the growth prospects of Stryker Corporation (NYSE:SYK) and Zimmer, which are respectively up 34% and 36% over the past twelve months, I think there are too many uncertainties on the horizon for both companies, due to their unstable earnings growth and damaging recalls. However, they are still better investments than NuVasive and Orthofix International NV (NASDAQ:OFIX), which have to deal with their embarrassing problems over the next several quarters.
Regardless of the trials and tribulations of these companies, the market for spinal and orthopedic care products is expected to remain strong, with the U.S. spinal implant market projected to exceed $6 billion by 2019, as a result of a rapidly aging population. Therefore, these stocks could be solid long-term investments, if investors are willing to ride out short-term volatility from product approvals, failures, and recalls.
The article Why Are These 3 Spinal Treatment Companies Making Headlines? originally appeared on Fool.com and is written by Leo Sun.
Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of Zimmer Holdings. Leo 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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