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Why Natus Medical Inc. Shares Popped

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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 Natus Medical (NASDAQ: BABY  ) , a global developer of neurodiagnostic and newborn care products, rose as much as 32% after reporting its third-quarter earnings results and issuing market-topping fourth-quarter guidance.

So what: For the quarter, Natus reported a 5% increase in revenue to $85.4 million and an adjusted profit of $0.30 per share which was up 86% from the year-ago period. Natus cited improved results in its North American and European markets across both its neurology and newborn care product segments as the primary reason for the solid performance. Comparatively, the consensus estimate on Wall Street had called for just $80.8 million in sales and $0.19 in EPS. Looking ahead, Natus forecast fourth-quarter sales of $87 million to $90 million and EPS to range between $0.30 and $0.32. The current estimate on the Street had been calling for just $85.6 million in sales and $0.24 in EPS.

Now what: In other words, Natus Medical absolutely killed it this quarter compared to expectations. It's definitely good news to see the company's European business improving modestly, but the key factor to really focus on here is the company's niche roll in newborn care products and neurology – two fields that don't have a ton of competition. On paper, Natus looks like a company that should be quite successful moving forward as long as it can keep its expenses in check. Even after today's pop, Natus could be quite attractive at just 21 times forward earnings. However, it's also shown a bit of inconsistency with its sales growth in recent quarters, which is why I'd suggest adding it to your watchlist and doing a deeper dive rather than wrapping Natus up in a blanket and taking it home at this price.

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9/29/2016 3:02 PM
BABY $39.40 Down -0.49 -1.23%
Natus Medical CAPS Rating: ****