Volcano: Stock Looks Ready to Erupt

I have spent the past couple of months pursuing a theme that I think makes a lot of sense. I believe that medical device companies that sell a high amount of consumables (relative to capital equipment) will continue to grow strongly despite some recent inventory destocking that may have hurt short-term sales performance. If you check out my holdings, you will see that I own four names that attempt to capture this thesis: C.R Bard (BCR), Somanetics (SMTS), Angiodynamics (ANGO) and Volcano (VOLC). Today, I would like to briefly discuss the investment case for the one I consider the riskiest, VOLC. I apologize for brevity, but I am recovering from shoulder surgery and am typing one-handed.

To back up, I identified a universe of about 80 companies that fall into the category of device manufacturers with highly recurring revenue. As I tempted to slim this group down, gross margin was one of the key attributes that I thought might highlight barriers to entry. The last thing I want in a down economy is a commodity manufacturer!