STAAR Surgical (STAA)

Medical lens company STAAR Surgical (NASDAQ:STAA) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 6.9% year on year to $94.73 million. Its non-GAAP profit of $0.47 per share was 90.1% above analysts’ consensus estimates.

Company Overview

With over 2.5 million implants performed worldwide, STAAR Surgical (NASDAQ:STAA) designs and manufactures implantable lenses that correct vision problems without removing the eye's natural lens.

The medical devices industry operates a business model that balances steady demand with significant investments in innovation and regulatory compliance. The industry benefits from recurring revenue streams tied to consumables, maintenance services, and incremental upgrades to the latest technologies, although specialty devices are more niche. The capital-intensive nature of product development, coupled with lengthy regulatory pathways and the need for clinical validation, can weigh on profitability and timelines. In addition, there are constant pricing pressures from healthcare systems and insurers maximizing cost efficiency. Over the next several years, one tailwind is demographic–aging populations means rising chronic disease rates that drive greater demand for medical interventions and monitoring solutions. Advances in digital health, such as remote patient monitoring and smart devices, are also expected to unlock new demand by shortening upgrade cycles. On the other hand, the industry faces headwinds from pricing and reimbursement pressures as healthcare providers increasingly adopt value-based care models. Additionally, the integration of cybersecurity for connected devices adds further risk and complexity for device manufacturers.

STAAR Surgical's main competitors in the ophthalmic medical device market include Alcon (NYSE:ALC), Johnson & Johnson Vision (NYSE:JNJ), Bausch Health Companies (NYSE:BHC), and Carl Zeiss Meditec AG (ETR:AFX).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $230.6 million in revenue over the past 12 months, STAAR Surgical is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, STAAR Surgical grew its sales at a decent 8.1% compounded annual growth rate. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. STAAR Surgical’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 13.8% over the last two years.

STAAR Surgical also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 10.7% year-on-year declines. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for STAAR Surgical.

This quarter, STAAR Surgical reported year-on-year revenue growth of 6.9%, and its $94.73 million of revenue exceeded Wall Street’s estimates by 4.3%.

Looking ahead, sell-side analysts expect revenue to grow 42.7% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and suggests its newer products and services will catalyze better top-line performance.

Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.

STAAR Surgical was profitable over the last five years but held back by its large cost base. Its average adjusted operating margin of 2% was weak for a healthcare business.

Analyzing the trend in its profitability, STAAR Surgical’s adjusted operating margin decreased by 55.8 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 48 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q3, STAAR Surgical generated an adjusted operating margin profit margin of 19.5%, up 13.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for STAAR Surgical, its EPS declined by 40.4% annually over the last five years while its revenue grew by 8.1%. However, its adjusted operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

We can take a deeper look into STAAR Surgical’s earnings to better understand the drivers of its performance. As we mentioned earlier, STAAR Surgical’s adjusted operating margin expanded this quarter but declined by 55.8 percentage points over the last five years. Its share count also grew by 4.9%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q3, STAAR Surgical reported adjusted EPS of $0.47, up from $0.22 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast STAAR Surgical’s full-year EPS of negative $1.17 will flip to positive $0.26.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

STAAR Surgical has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.4%, subpar for a healthcare business.

Taking a step back, we can see that STAAR Surgical’s margin dropped by 37.3 percentage points during that time. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s in the middle of a big investment cycle.

STAAR Surgical’s free cash flow clocked in at $1.78 million in Q3, equivalent to a 1.9% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

STAAR Surgical’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 8.9%, slightly better than typical healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, STAAR Surgical’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Companies with more cash than debt have lower bankruptcy risk.

STAAR Surgical is a well-capitalized company with $176.2 million of cash and $39.12 million of debt on its balance sheet. This $137 million net cash position is 10.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly STAAR Surgical blew past analysts’ constant currency revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock remained flat at $26.55 immediately following the results.

Updated: December 3, 2025 at 10:51 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in STAAR Surgical.

STAAR Surgical falls short of our quality standards. Although its revenue growth was decent over the last five years and is expected to accelerate over the next 12 months, its diminishing returns show management's prior bets haven't worked out. On top of that, the company’s declining EPS over the last five years makes it a less attractive asset to the public markets.

STAAR Surgical’s P/E ratio based on the next 12 months is 61.4x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $25.88 on the company (compared to the current share price of $26.45), implying they don’t see much short-term potential in STAAR Surgical.