Imris (7.25 last)

This is not my typical recommendation due to its high valuation on almost any forward or trailing metric. That being said. Imris could be a powerhouse growth story over the next 5 years due to an outstanding CEO, its widely acknowledged technological superiority, and current product penetration (less than 1%) in a massive market. Given that the stock trades at 3.5x book value and 4.5x sales, most "value" analysts would run from the story kicking and screaming. A more appropriate way of thinking about the story is looking at the existing management, the existing product, the successes to date, and the potential size of their end market.

Imris makes mobile Magnetic Resonance Imaging (MRI) platforms for hospitals and clinics that produce non-invasive images of soft tissue during complex surgical procedures. Since being founded in 2005, they have sold 41 of their systems worldwide. The flagship product, IMRISneuro (34 sold) has a $4mm-$7mm price tag and is used for neurosurgeries, primarily brain tumour removal. The second product, IMRISuv (3 sold) has a $7-$10mm price tag and combines MRI with real time x-ray images (flouroscopy). The third product (4 sold) called IMRIScardio sells for $8-$12mm and incorporates MRI and flouroscopy for cardiovascular applications such as the treatment of coronary artery disease. An interesting fourth product is a result of a joint venture between Imris and Varian Medical Systems can be expected in late 2011. The product will combine Imris's real time imaging with Varian's TrueBeam radiation therapy system. Its worth noting that Varian is a market leader, with a 60% market share in radiotherapy and radiosurgery accounting for $3.7B in annual sales and an install base of 6,000 units. The partnership is a strong vote of confidence in Imris's technology.

The key to Imris platforms is that the can be used for pre, intra, and post operating imagery. Existing platforms sold by GE, Siemens, and Philips are large and static. They require doctors to move the patient out of the operating room intra-operation, place the patient in an MRI machine, then bring the patient back to the operating room. During complicated and time-sensitive surgeries this movement is unacceptable. Imris's mobile MRI can be brought into the operating room on an installed track, image the patient without moving them, then be removed so that surgeons can get back to work. Hospitals like the Imris systems so much that Imris has a greater than 80% win rate in competitive bidding. Contract loses are not due to a deficiency in the product, but hospital budget issue as Imris systems cost more than their competitors.

One of the highlights of the story is CEO David Graves. Mr. Graves is a professional engineer and serial entrepreneur that started wireless telecommunications company Broadband Networks, which he sold to Nortel in 1998. From 1998 to 2005 he was CEO of venture capital company Centara Corp before starting Imris. Mr. Graves is the largest holder of Imris with 26.7%, while total insider ownership accounts for 35%. The management team is comprised of very technically astute individuals who have a reputation among clients for their knowledge and professionalism.

From a financial prospective, Imris estimates that the number of hospitals with expertise in neurosurgery is (the market for IMRISneuro) is 990 versus their current install base of 34. Wedbush estimates that there are 781 stroke centers in the US (IMRISnv) and 669 heart centers (IMRIScardio) that have high patient volumes and are experienced in handling complex cases. The total global market for each of their current three products, according to their research, could be nearly 5,200 centers. Compare this to the 41 systems they have sold since 2005. Regardless of what the total number of customers is, Imris is nowhere near reaching the limit. Sales of new units could easily double or triple, while they will also get recurring service and maintenance revenue from a widening install base. Sales backlog has grown 44% YoY to $120mm, of which at least 80% will be realized in the next 12 months.

The company may be trading at 2.3x 2011 EV/sales, but this is not Coke or Proctor and Gamble. Imris has a good shot at doubling their sales in the next 3 or 4 years. They have a strong management team with a big ownership of the business. There is no competitive threat as Imris has copyrights on their mobile technology until 2015. The downside risk is that Siemens supplies critical components in the Imris system, and are also a competitor. Sales are also choppy as single wins or losses greatly affect quarterly results when the company is small. Hospitals on mass could also cut budgets (unlikely as sales grew throughout 2008 and 2009) or regulatory approval for new products could be slower than usual. You risk selling down to a multiple of book (at which someone scoops the patents) or 1x sales, since thats how tech people like to look at it, say $3 on a complete fire sale. I view this as highly unlikely. You could lose 50% to make 2 or 3 times your money within 3 to 4 years. I view the bullish argument as a much higher probability given the competitive advantages and growth potential I mentioned above.