STAAR Surgical: Expecting A Re-Acceleration In Growth As Investments Materialize

Investment Thesis - STAAR Surgical's EVO lens is the leading product in the corrective eye surgery market, with a growing market share due to its superiority over existing procedures [2] - The company is achieving solid growth and strong profitability despite macroeconomic challenges, with a healthy balance sheet of $23.5 million in cash and no debt [2] - Anticipated 21% growth in each of the next two years, leading to revenue and FCF of $500 million and $70 million respectively for 2026 [2] - Price target of $46 implies substantial upside potential, offering an attractive risk-reward profile for investors [2] Financial Highlights and Growth Outlook - Global ICL sales grew 7% year-over-year in Q2, with strong growth in the Americas (14%) and EMEA (10%) [4] - US market sales grew 25% year-over-year to $5.5 million, with potential annual sales of $140 million if market share increases to 20% [4] - Growth in the US is expected to accelerate to above 30% over the next two years [4] - Full-year guidance raised by $5 million due to strong Q2 performance [4] China Market Performance - China sales represent a significant portion of overall revenue, with year-over-year growth of close to 6% in H1 2024 [5] - Management expects a 10% increase in sales for the full year, with growth accelerating in the second half of 2024 [5] - Growth is driven by the addition of a second distributor and Chinese government stimulus programs [5] - Mid-teens growth exiting Q4 is expected to be sustained through 2025 and 2026 [5] Ongoing Investments and Margins - Gross margins are rising towards 80%, but operating expenses have increased, capping adjusted EBITDA margins at close to 12% [6] - Sales and Marketing expenses have decreased, while R&D and G&A expenses have significantly increased [6] - Expense growth is expected to moderate over the next two years, with adjusted EBITDA margins approaching 20% by 2026 [6] Valuation and Future Targets - Revenue growth of 21% expected in both 2025 and 2026, reaching $500 million in 2026 [7] - Adjusted EBITDA expected to be approximately $95 million, translating to FCF of close to $70 million after deducting capex [7] - Current enterprise value of $1.33 billion, with shares valued at an EV/2026 FCF multiple of 19 [7] - If valued in line with peers, a 30x multiple on FCF would imply an enterprise value of $2.1 billion and a share price of $46, representing 44% upside [7] Conclusion - STAAR's EVO lens is a leading product in the corrective eye surgery market, with strong growth prospects and an attractive valuation [10] - The company's growth trajectory and market position make it a compelling investment opportunity with significant upside potential [10]