Medical devices maker Boston Scientific (NYSE:BSX) recently announced that CEO Ray Elliott was leaving, and its stock subsequently plunged 9%. This departure raises a question about whether this troubled company could be a takeover target. Should you invest on that possibility?

Elliott had been known as “an industry tough guy” when he joined the company from orthopedics device maker Zimmer Holdings (NYSE:ZMH), according to Bloomberg.

But Elliott’s bluster exceeded his performance. Under his tenure, sales fell — 4.7% in 2010 to $7.8 billion and quarterly sales fell below the $2.1 billion level they reached the quarter before Elliot started there. In the most recent quarter, revenue declined 1.8% to $1.9 billion and Elliott was expecting a “difficult” 2011.

The sad thing is that Boston Scientific used to be a high-flyer. It was one of the top-performing stocks in my investment newsletter back in 2004. Between 2000 and 2004, its stock rose straight up to $45 from $6 as its Taxus dominated the market for drug-coated stents. But things went downhill and in 2006, Boston Scientific made what turned out to be a disastrous $27.3 billion acquisition of medical device maker Guidant in a pyrrhic takeover battle victory over its stent rival Johnson & Johnson (NYSE:JNJ).

What went wrong with this deal is an object lesson in what not to do when buying a company. Boston Scientific overpaid, took on nearly $9 billion in debt, and in the process ignored technical problems with Guidant’s defibrillators that led to costly lawsuits — 4,000 of which were settled for $195 million. From its peak at $45, Boston Scientific stock is down 84%.

Is Boston Scientific stock a bargain at this price? At a P/E of 18.5, the company is expected to make 45 cents a share in 2012, up from the 39 cents a share its being forecasted to earn in 2011. If that 2012 forecast is accurate, the stock trades at a Price/Earnings to Growth (PEG) of 1.23, not overly expensive.

Unfortunately, Boston Scientific’s short-term prospects are not as good. Its 2011 earnings are expected to be down 18%, and the company is likely to suffer a talent exodus as its board spends the next few months trying to convince a new CEO to step in.

Meanwhile, Boston Scientific faces cash flow concerns. In 2011, the company is on the hook to repay $500 million in debt and in 2010, its cash balance plunged 75% to $213 million. How will it come up with the half a billion dollars? 

And in December 2010, the IRS charged Boston Scientific with underpayment of taxes to the tune of $525 million plus interest, according to its 2010 10-K filing.

With all its problems, Boston Scientific is hardly the ideal takeover candidate. Yet its strong market position would make it a tempting target for J&J or market leader Medtronic (NYSE:MDT) — particularly if all its liabilities could be used to take a big bite out of the purchase price.

For investors with strong tickers and an iron-coated stomach, taking a bite of Boston Scientific at its current level, could be a profitable bet.

Peter Cohan has no financial interest in the securities mentioned.