What happened

Shares of Natus Medical (NASDAQ:BABY) fell 18.1% in February, according to data provided by S&P Global Market Intelligence. The manufacturer of medical devices and equipment for newborns reported mixed fourth-quarter 2018 results on Feb. 13.

So what

Natus has generally been an acquisitive company, with a strategy of growing through small tuck-in or bolt-on acquisitions that could help it improve its margins. But in recent years, those acquisitions have slowed. Its last acquisition was all the way back in 2017, when it bought Integra LifeSciences' neurosurgery assets.  

A smiling baby under a blue hooded towel.

Natus Medical focuses on medical devices and equipment for infants. Image source: Getty Images.

Without new acquisitions to improve margins, the company has primarily focused on organic growth. For some of its products, this has been a successful strategy. Its Otoscan machine, for example, which scans the inside of an infant's inner ear to ensure a better fit for hearing aids, has been a bright spot since its introduction in Q3 2018. In Q4 2018, 120 Otoscan devices were shipped, more than double the number placed in Q3. 

But one superstar product hasn't been enough to offset weakness elsewhere in the portfolio. Last quarter, the company posted $141 million, the highest quarterly revenue in its history, but its net loss still disappointed. It hasn't had a profitable quarter since early 2017. Adding insult to injury, it issued weak guidance for 2019, which sent investors fleeing for the exits.

Now what

This one's a tough call. On the one hand, Natus has some serious growth potential through its Otoscan machines and a few other top-tier products like the neoBlue phototherapy blanket for the treatment of newborn jaundice. If sales really take off, Natus could return to growth. 

But overall, the acquisitions drought hasn't worked out for the company. Although revenue is increasing, earnings are negative, and even adjusted earnings are expected to be weaker in the coming year. I wouldn't buy new shares of Natus right now, and if I owned shares, I'd strongly consider whether that money could be better deployed elsewhere.