Can you SEE the logic here?

This week the world came crashing down for a Dunfermline-based business called Optos Plc.  A 90% drop in profits and cashflow issues meant the share price was down 25% at one point in the morning of Thursday 16th May.  Sounds bloody terrible, doesn't it?

Well (as always), perhaps.  Who are Optos?  The company website says:

"Optos plc has the vision to be The retina company. We aim to be recognised as a leading provider of devices and solutions to eyecare professionals for improved patient care. Optos' core devices produce ultra widefield, high resolution digital images (optomaps) of approximately 82% of the retina, something no other device is capable of doing in any one image."

 Now, this by my understanding, is a very interesting market.  First of all, it's healthcare - a well known defensive; secondly, there is a very limited number of companies operating in the vertical - big Japanese companies like Nikon Corporation and Canon USA.  So how come a £100m company can compete in the space?  My understanding is that a lot of the competitive advantages of Optos relate to its research base, which as the quote above points out gives it a distinct advantage.

The company is going to market leading with its Daytona machine - a low cost product for widescreen imaging.  It has already shipped 400 units, with the expectation that it will hit 1000-1200 units for the full year.

There is some interesting commentary on accounting practices at Optos as well.  Previously the company had been pushing operating leases (income recognised each year), but over the last couple of years has moved towards finance leases (multi year income recognised in the first year).  Sounds great at the start (the last two years), but if the sales momentum is not maintained then suddenly sales fall off a cliff (the kind of thing that would cause a 90% profit drop!).

I like defensive, I like niche markets, I like defensible technology, and I like big drops in share price as an entry point with a stock.  Let's see how this one goes, as it seems to be ticking the boxes right now.