Simple, Beautiful, Cantel

Ever find yourself staring cockeyed at an earnings release? Then you know how I felt last night looking at the second-quarter results for medical products firm and Motley Fool Hidden Gems pick CantelMedical (NYSE: CMN  ) . The numbers looked good. So did management's guidance. It's just that the announcement was so. short.

In fact, it was the model of simplicity. Here's a run-down: Second-quarter profit rose 51% to $3.9 million, or $0.24 per share, aided mostly by a 21% rise in sales year-over-year. Gross margins improved by 2% to 39%. Operating margins jumped from 11% to 13%. And that, folks, was pretty much it. Even the financial statements were abbreviated. Cantel included a full income report, but the balance sheet was summarized and the cash flow statement was nowhere to be found.

I swear I sat on my couch for 30 minutes contemplating that disturbing lack of detail. I even thought ever so briefly that management needed a talking-to. But then I realized it's releases like this -- elegant in their simplicity -- that allows there to be Hidden Gems in a market of 9,000 stocks.

You see, reading the release you might think Cantel to be one of the market's geeks. You might also be turned off by the lack of detail as I was. And that might keep you from digging through the company's Securities and Exchange Commission filings.

That, Fool, would be a shame. Because after only 30 minutes of digging I found enough information to come up with a reasonable estimate of owner earnings. My calculations come in at $4 million for the quarter, and $7.5 million for the year-to-date. That's a $15 million run-rate, but with each quarter showing some modest acceleration in this statistic, I think $16 million in the current fiscal year is entirely possible. That would make for 18% year-over-year growth.

More impressive to me is the way Cantel has been dramatically improving its balance sheet. Total assets and liabilities for the current quarter again improved by nearly $3 million. My guess is that pushed Cantel's cash balance over $20 million while cutting debt to $16 million. In July, Cantel had roughly $22 million in debt versus $18 million in cash. That's an $8 million swing in six months.

Best of all, Cantel may still be cheap, trading for only 23 times owner earnings. So is there an investing lesson here? Sure. Ignore the firms that go for the glam. Lipstick doesn't make a pig pretty. Nor can it hide the natural beauty that comes from increasing earnings, steadily rising cash flow, and an improving balance sheet. It's that kind of plain-Jane natural good looks that makes Cantel a stunner even today.

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Fool contributor Tim Beyers isn't a big fan of the glam. He'd rather hang with the geeks of the market. Where are you searching for stock ideas? Share your thoughts with other Fools at the Foolish Collective discussion board. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile, which is here. The Motley Fool has a disclosure policy.


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