At presstime, Ocular Sciences and Wesley Jessen were rated either buy or strong buy by several analysts. Why?

The long-term investor may view these two companies as strong players in the growing contact lens industry. But analysts have to look at the short term as well, so every earnings report, every bit of company news, and even every rumor has to be analyzed for its value in a buy or sell equation.

If you bought stock in Ocular Sciences or Wesley Jessen last spring, you may have wondered if you did the right thing. Both fell from the low 30s in April to the low 20s at presstime, with a few ups and downs in between.

But both have had great earnings reports and look forward to continued growth in 1999. In the past year, Ocular beat analysts' estimates by 5.6 percent to 31.6 percent. WJ hit estimates on the nose last quarter, but beat them before by 2.6 percent to 12.5 percent. This year, earnings growth for Ocular has been 23 times the S&P Index average; WJ achieved 14 times S&P growth.

Another important figure is sales growth. Ocular's grew 26 percent in the third quarter over third quarter 1997, while WJ's stayed about the same. But don't draw any conclusions yet. Sales growth is important; but short-term, analysts usually care more about whether a company's profit, operating, and gross margins are rising or falling. If they're rising, and income is growing faster than sales, then the company is thriving and well-managed. The stock price has room to grow, so it's a good time to buy.

If margins are falling, with sales growing faster than income, this could signal a drop in stock price, so it may be time to sell or short. At the end of the third quarter, Ocular's margins were falling just slightly, while WJ's were rising at a very healthy rate. But remember, Ocular's margins rose like gangbusters early this year and could again.

Contact lens industry trends seem to support analysts' conclusions. In 1997, new fits and refits in the United States grew 4 percent, according to Health Products Research. The great thing about contact lenses is that making more units doesn't require much capital expenditure. So profit margins can grow as the market grows. And recently accelerated growth in specialty and disposable lenses is good news for the companies--like Ocular and WJ--who make them.

Does the numbers game ever end? Not really. Unfortunately, over-attention to earnings reports may have unfairly deflated several vision care stocks this year, in spite of sound industry growth. Ocular and WJ both suffered the same late-summer slings and arrows; but the fact that they began a solid rebound in October should tell you that even if they sometimes mislead, the numbers don't ever lie. EB