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 (MMSI -0.88%), a manufacturer of disposable medical devices used in interventional and diagnostic procedures, jumped as much as 22% after crushing Wall Street's earnings expectations in the third quarter.
So what: For the quarter, Merit Medical Systems delivered a 20% increase in sales to $115.2 million (a quarterly record) as non-GAAP net income grew 24% from the year-ago period to yield $0.25 in EPS. Comparatively speaking, the consensus estimate on Wall Street had called for just $0.13 in EPS on revenue of $108.9 million. Leading the charge were catheter sales, which rose 17%, although stand-alone device sales and custom kit and tray sales also added their fair share with sales improvements of 15%. If there was one thing to nitpick about, it was that gross margin fell 200 basis points year-over-year to 46.5%.
Now what: It's certainly been a wild year for Merit Medical, which missed by a mile in the first quarter and now beat handily in the third. It's also, therefore, a bit difficult to tell which Merit is the one we should trust. Although the need for disposable medical devices, and their convenience factor, should only increase with the rollout of Obamacare and the projection that millions of currently uninsured people will buy insurance, the uncertainties surrounding spending and the medical device excise tax are gray clouds hanging over Merit's parade. It's a company I'd say is worth adding to your watchlist, but I'd like to see earnings consistency continue for a quarter or two more before giving it a clean bill of health.
