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Steven Cohen Significantly Increases in ArthroCare Corp., Almost 300%

December 03, 2012 | About:
As of Nov. 29, billionaire Guru investor, Steven Cohen, founder of SAC Capital Advisors, has reported to purchasing more than 1.5 million shares of ArthroCare Corp. (ARTC), increasing his holding by 288.73 percent according to GuruFocus Real Time Picks.

This places Cohen at 5.6 percent owner of the company, with a current holding of 1,556,096 shares. At the end of the third quarter, he only reported 400,300 shares.

Cohen started off with tiny holdings of ArthroCare in the second quarter of 2007 when its price was at an all-time high, before he sold out in 2008 when its price entered a plummeting path. When its value picked back up in 2009, Cohen purchased a significant amount of shares in 2010, and had been actively trading the stock in the following consecutive quarters ever since.

With a market cap of $928.78 million, and an enterprise value of $725.62 million, Texas-based ArthroCare is in the business of developing and manufacturing surgical devices, instruments and implants for surgical patients. Its two core product areas include sports medicine and ENT (ears, nose and throat); it also has products for such areas as spine, wound care, urology and gynecology (arthrocare.com).

ArthroCare Corp. stock has been down almost 3 percent for the morning’s trading, priced at $32.69, close to its three-year high.

In its third quarter financial results, ArthroCare reported a total revenue of $86.9 million, an increase by 4.4 percent compared to the same time last year. The company’s product sales, medicine sales and worldwide ENT sales all underwent year-over-year increases, while its international sports medicine product sales and its “other product sales” suffered decreases compared to year-over-year data.

According to the report, the increases were due to such things as volume increases from new products and higher product sales in direct and distributor markets. The strengthened worth of the U.S. dollar against the euro, British pound and Australian dollar contributed to the company’s third quarter decreases.

ArthroCare’s management states currency plays a huge role in placing value in the growth of the company, stating in the release:

“Percentage sales growth in constant currency is an important metric for evaluating our operations because the impact of changing foreign currency exchange rates may not provide an accurate baseline for analyzing trends in our business.”

ArthroCare is given one Good Sign on GuruFocus, indicating that it has a strong Altman Z-Score. However, it has four Medium Warning signs and one Severe Warning sign, due to such things as P/B and P/S ratios close to their one-year and three-year highs, respectively, cash flow divergence and a slowdown in per share revenue growth.

In the last year, revenue per share data has gone down incrementally each quarter, reflecting a slow down, after several years of a positive trend.



Ever since 2007, ArthroCare’s public image has been ridden with legal troubles, starting with an investigation about its acquisition of its subsidiary, DiscoCare Inc., accused of charging insurance companies 500 percent more for one of ArthroCare’s products than the listed price for physicians, reported by Austin Business Journal. The August article covers several legal events that ArthroCare has battled over the years.

In a Department of Justice press release, the explanation for ArthroCare acquiring DiscoCare was due to the fact that DiscoCare allegedly owed ArthroCare a substantial amount of money on unused inventory, during the rule of two former senior executives, John Raffle and David Applegate.

Raffle and Applegate were arrested in August for the following charges, stated in the release: one count of conspiracy to commit wire, mail and securities fraud; four counts of wire fraud; eight counts of mail fraud; and three counts of securities fraud.

Besides ArthroCare, unfortunately, Cohen’s SAC Capital Advisors, has also had its share of legal woes recently. SAC Capital portfolio manager, Mathew Martoma was arrested Nov. 20 on charges using inside information to trade stocks, which Bloomberg reported. Cohen allegedly sold stocks of drugmakers, Elan Corp. and Wyeth LLC, after speaking with Mahortma, which currently places him under scrutinizing investigation.

Despite Cohen’s legal run-ins, he has been keeping up with his portfolio of 1,486 stocks. After reporting his third quarter portfolio updates, Cohen has purchased more shares of several companies within the last several weeks including Goodrich Petroleum Corp. (GDP), Plains Exploration & Production Company (PXP) and Opentable Inc. (OPEN).

View Steven Cohen’s portfolio details here. Also view his undervalued stocks, top growth companies and high yield stocks here.

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About the author:

Dianne Tordillo
Dianne Tordillo is staff writer for GuruFocus.com. She reports on a variety of financial news, primarily dealing with investor portfolios and stock trades. Her articles also highlight insider trades, as well as the many useful features of GuruFocus.

Visit Dianne Tordillo's Website


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