Seeking Alpha: Look Past A Sales Transition To Novadaq's Future

Emerging med-tech Novadaq Technologies (NASDAQ:NVDQ) is now entering a new phase of its corporate life. The soured relationship with LifeCell is now in the company's past, and Novadaq is moving forward with a suite of products that offered demonstrated clinical benefits. Transitioning back from LifeCell is going to have a near-term impact on sales, though, and not for the good. Longer-term, I continue to believe that Novadaq can generate more than $1 billion in annual revenue with a portfolio of products that drive better outcomes in open surgery, minimally invasive surgery, and wound care.

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Look Past A Sales Transition To Novadaq's Future

Seeking Alpha: Novadaq Technologies Knocked Back, But A Large Opportunity Remains

In prior pieces on small-cap med-tech Novadaq Technologies (NASDAQ:NVDQ) I've warned investors that emerging med-tech stories don't have smooth, seamless ramps and that this stock's exceptionally high valuation (at least on the short-term outlook) was an invitation to volatility. That has all come home to roost, as the shares that were once 68% above the price where I wrote on them as a Top Idea are now 2% below that level and down about 5% from my more recent piece in May.

I remain a believer in the technology and the market opportunity for Novadaq. There are literally hundreds of thousands of procedures (if not millions) every year where Novadaq's imaging technology makes clinical and economic sense, and with revenue potential of hundreds of dollars per procedure the numbers can get big pretty quickly. Competitive entries seem inevitable (though Intuitive Surgical (NASDAQ:ISRG) has gone unchallenged for a while now) and the company has to navigate an increasingly contentious end to its relationship with LifeCell. Even with those risks, I remain bullish on these shares and believe a fair value in the high teens is reasonable.

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Novadaq Technologies Knocked Back, But A Large Opportunity Remains

Seeking Alpha: Novadaq On Track To Bring Excellent Growth To Light

With second quarter results in hand, Novadaq (NVDQ) continues to look like a rare med-tech story with both very strong growth and large addressable markets trading at something close to a reasonable valuation. "Reasonable" is a subjective assessment, of course, it will take many years of exceptional growth for Novadaq to earn its valuation, but I believe the company's strong portfolio of surgical imaging technologies can drive that growth.

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Novadaq On Track To Bring Excellent Growth To Light

Seeking Alpha: Red-Hot Novadaq Shows There's Green In Being Green

There aren't a lot of great med-tech growth stories these days, and many of those are already quite expensive. Novadaq Technologies (NVDQ) is hardly cheap at almost 22 times sales, but this company is very early in its product launch life and could see revenue grow from about $25 million over the trailing 12 months to perhaps $1 billion down the road.

With an affordable, safe, easy-to-use diagnostic system that delivers very real benefits in terms of lower complication rates and costs, Novadaq has an impressive opportunity as well as strong partners like LifeCell and Intuitive Surgical (ISRG) to help them realize those opportunities. I think it's relatively easy to argue that Novadaq is worth about $18 per share today, and seeing upside beyond $21 is not too challenging.

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Red-Hot Novadaq Shows There's Green In Being Green