LCA-Vision (LCAV), operator of laser vision correction centers, saw its shares fall nearly 25% during heavy trading this past Monday, on the heels of lowered 2006 earnings guidance.

Earnings are now expected to come in between $1.60-$1.70 per share, down from the previous guidance of $1.80-$1.90 per share. Analysts had been looking for earnings of $1.89 per share for the full year.

The company cited a miss in its advertising campaign as the reason for the earnings guidance downgrade. The $13 million marketing campaign failed to generate the expected number of appointments, leading to weaker sales.

Another factor weighing down LCA's shares Monday was the resignation of Kevin Hassey, the company's president, which was announced Friday. No reason was given for his departure but the company stated it had nothing to do with the earnings announcement.

After years of spectacular growth, both in sales and share price, the two announcements were obviously a hard pill to swallow for LCA investors. But with shares off by nearly a quarter, it begs the question of whether this sell-off has provided a good investment opportunity.

The good news is that the company's underlying business remains strong. Lasik eye surgery continues to remain one of the most frequently performed elective treatments in the United States, with an estimated 1.4 million procedures performed each year. This number should only increase over time due to not only an aging population but also since the procedure itself continues to gain wider acceptance as being both a safe and effective solution to near- and far-sightedness, along with astigmatism.

While the company did misstep in its advertising campaign, something most companies do at some point, its operational strength and growth continues to remain strong. For the first six months of the year, LCA-Vision has seen its revenues increase 41% on a year over year basis.

The earnings increase has transferred well into a similar increase in earnings, which were $23.9 million for the first six months of the year compared to $17.1 million in the same period last year. The company also generates strong cash flow, as it hauled in $32.9 million in operational cash flow over the first six months, which is up from $24 million in the same period last year.

If we take the low earnings guidance of $1.60 per share, the company is currently trading at 19.5x earnings, which is not too bad for a company that has seen average sales growth of 46% over the last three years.

Even with its recent missteps, the company is expected to see both revenue and earnings growth into 2007. Currently, without adjustment from analysts on the recent developments, earnings for 2007 are expected to come in at around $2.38 per share. If we take an extremely conservative stance of $2 per share in earnings for 2007, LCA-Vision is only trading at 15.5x earnings. Not bad for a company with a history of strong sales and earnings growth and an equally attractive amount of cash flow from operations.

The short-term could continue to be bumpy for the company, as it will need to show clear signs of improvement in its marketing campaigns in the future. Also, the sudden departure of its president is a cause for some concern, as these types of sudden moves can often be a sign of a much bigger problems.

But this large sell-off has provided a real opportunity for investors willing to take a little risk. This is a solid company with a strong macro-trend -- a company I think deserves a second look, especially with the recent sell-off.

Related Articles
  1. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  2. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  3. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  4. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  5. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  6. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  7. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  8. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  9. Mutual Funds & ETFs

    Using Short ETFs to Battle a Down Market

    Instead of selling your stocks to get gains, consider a short selling strategy, specifically one that uses short ETFs that help manage the risk.
  10. Investing Basics

    How to Diversify with International Stocks

    Diversifying with international stocks can benefit most portfolios, but beware of country risk.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!