Inconsistency And Credibility Bedevil Novadaq Technologies

Revisiting bad calls is never fun, but such is life. Novadaq (NASDAQ:NVDQ) has been quite a disappointment, with the shares down about 30% since my last write-up, and down significantly relative to the medical device space as a group over the past year (the iShares Medical Devices Index is up 32% versus Novadaq's 28% dive). While investors have worried about the potential competitive threat of larger companies like Stryker (NYSE:SYK) in the imaging space and the risk that capital spending will shrink in 2017 due to uncertainties regarding the U.S. insurance/reimbursement landscape, Novadaq has muddied the waters with yet another strategic shift and relatively poor communication with the Street.

I won't argue that Novadaq's recent switch to a more flexible sales model with less upfront capital commitment is a bad move, but it seems like the company switches strategy almost every year, and it continues to be less than fully transparent with the moving parts of its business (sales of particular line items like SPY/PINPOINT, LUNA, DermACELL, etc.). Given the recent guidance for a significantly worse fourth quarter and 2017, Novadaq is firmly back into a "show me" valuation situation.

While I think the underlying technology does work, can/will be adopted to a significant degree, and can support a $1 billion/year business, Novadaq needs to log multiple quarters of clear progress to build confidence in the story. I do think the shares are undervalued today, but I've followed stories like this before in the med-tech space and it can take a while for the business plan to get sorted out.

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Inconsistency And Credibility Bedevil Novadaq Technologies