Why Merit Medical Systems Shares Collapsed

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Merit Medical Systems (NASDAQ: MMSI  )  -- a manufacturer of disposable medical devices in cardiology, radiology, and endoscopy -- plunged as much as 27% after reporting its fourth-quarter earnings results.

So what: For the quarter, Merit Medical reported a 12% increase in revenue to $102.2 million and $0.15 in EPS compared to $0.18 in the year-ago period. While surpassing the Street's expectation of just $100.9 million in revenue, it fell $0.04 short of the $0.19 in EPS that was forecast. It actually got even worse from an earnings perspective with the company's 2013 guidance. For the upcoming year, Merit anticipates revenue of $455 million to $465 million and adjusted EPS of $0.61-$0.67. Current estimates on the Street called for $446.9 million in revenue and $0.89 in EPS.

Now what: Say hello to higher research and development costs and the introduction of the medical device excise tax! Sales of Merit's products appear to be relatively healthy; unfortunately, the industry is highly competitive, and R&D expenses and taxes are rising. While I'm tempted to call Merit an intriguing value here, the scope of the miss is far too large for me to just consider it a one-time thing, and I'd suggest keeping your distance for at least the next quarter or two.

Craving more input? Start by adding Merit Medical Systems to your free and personalized watchlist so you can keep up on the latest news with the company.

While you can certainly make huge gains in medical device makers like Merit Medical Systems, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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Related Tickers

9/27/2016 4:00 PM
MMSI $23.62 Up +0.14 +0.60%
Merit Medical Syst… CAPS Rating: ****