NuVasive Struggles to Hold onto Gains

For a year now, NuVasive has been on a roll. In that time the stock has more than doubled, so the occasional backstep due to overall market pressures and profit-taking shouldn't be a surprise. And indeed, since reaching a three-year peak on January 16 after a report of better-than-expected earnings, the stock has given back about 5.4% to close on January 27 at $36.59. This is a little worse than the S&P 500, which slid about 3.5% during the same period.

As there has been no new news either from or about the company since that earnings report, there is a strong temptation to blame the profit takers. In an SEC filing also on January 16, NuVasive president and COO Keith Valentine sold about 30%, almost $760,000 worth, of his shares in the company. Maybe he just wanted to pay off his mortgage.

Still, NuVasive made many Best Medtech Companies of 2013 lists and as the company executes its plans to increase market share, particularly outside the U.S. where it has lagged in market penetration, the company's future looks bright. So what makes Nuvasive special? For one thing, its minimally invasive approach to spinal fusion surgery more directly gets at the problem area and has a faster recovery time with fewer post-op complications.

Writing for the Motley Fool, Todd Campbell explains: "Historically, spinal procedures were conducted by entering the body from the heavily muscled front or back, resulting in longer post-operative recovery time and often resulted in complications requiring readmission. NuVasive's lateral entry approach, which enters through the patient's side, offers a more compelling solution given faster recoveries and lower readmissions. That has the company projecting the number of minimally invasive spine surgeries will climb from 25% of all spine procedures this year to 80% by 2021."

Analysts appear to be neutral to positive about the stock. Zach Kirkland reported on WKRB13.com on January 20 that  "Nine analysts have rated the stock with a hold rating and eight have issued a buy rating to the stock." He  also says that analysts at Goldman Sachs have raised their rating while those at Zachs.com have lowered theirs. Only the future will tell who was right.

But Campbell may also have hit on the reason there's lower-than-expected analyst optimism. "Although NuVasive is growing its top line at double-digit rates, earnings have struggled to keep pace. The company's operating margin, a key metric for measuring management's ability to turn a profit, significantly trails NuVasive's more diversified adversaries," he says. Those competitors, it may be recalled, include Medtronic, Stryker, and Zimmer Holdings.