Is there a second act to a stock that has quadrupled in price since the start of the year? That's the question asked by folks who failed to buy into Thermolase (TLZ), now trading at 21 a share. Investment manager Bill Harnisch bagged it early on--and now thinks there's a still better buy: ThermoTrex (TKN), which owns 70% of Thermolase.
"ThermoTrex has the promise of a double home run," says Harnisch, president of Fortsmann-Leff Associates, with assets of nearly $3 billion.
There's nothing wrong with buying just Thermolase, Harnisch says. Its laser technology, patented and recently approved by the Food & Drug Administration, zaps unwanted hair. "But with ThermoTrex, you get not only the play in Thermolase but the added sizzle" that he sees in ThermoTrex' prospects. ThermoTrex hasn't been a wallflower. Its stock has zoomed from 12 to 32--and about 27 of the current price reflects the value of its Thermolase holding.
The big sizzle in ThermoTrex is its LORAD division, which makes low-dose X-ray mammography gear and needle biopsy systems for detecting breast cancer. It has 36% of the market.
Harnisch expects ThermoTrex will soon take public--or spin off--part of its LORAD operation, which he thinks is worth at least 8 a share. The division provides 80% of ThermoTrex' revenues and all the earnings. Harnisch figures it has cash of $52.5 million, or $4 a share, and other assets worth another $5 a share.
ThermoTrex is also developing high-tech products, mainly for the military: a microwave camera that lets pilots see through fog and clouds, a detector that warns in advance of wind shear, and ultrahigh-range laser radar.
Harnisch sees ThermoTrex stock hitting 150 in two or three years. "The prospects for both Thermolase and ThermoTrex are open-ended," he says.
Oppenheimer analyst Leah Rush Cann agrees: Mammography leader ThermoTrex is developing the next two generations of gear that will produce "better results and be less uncomfortable for the patient," she says.
Cann thinks ThermoTrex revenues will grow 20% to 30% annually for the next few years, with operating margins expanding strongly.