Shares of Merit Medical Systems (NASDAQ:MMSI) soared 16.9% higher on Friday. The medical device maker didn't announce any news, but some investors appeared to view the stock's big sell-off on Thursday as an opportunity to buy on the cheap. Merit Medical announced disappointing third-quarter results and lowered its full-year guidance after the market closed on Wednesday.
It wasn't surprising that Merit Medical's shares sank after its dismal Q3 update. The company missed consensus Wall Street adjusted earnings estimates by a wide margin. But quite a few investors apparently felt that the sell-off was overdone. There's some merit (no pun intended) to that argument.
Quite a few healthcare stocks experience seasonal sales volatility. Merit is no exception. CEO Fred P. Lampropoulos pointed out that the third quarter, which falls in the summer months, has historically "been the slowest quarter of the year" for the company.
The year-over-year comparisons looked even worse this year because a rival's inventory shortage in Q3 of 2018 artificially boosted Merit's sales. That being said, Merit does face some problems now that are more severe than in the past -- notably, higher tariffs and the potential negative impact of the U.K.'s exit from the European Union.
But yesterday's decline for Merit stock made the share price inexpensive enough that forward-looking investors stepped in to scoop up shares. These buyers are probably encouraged by Lampropoulos' statements that Merit believes that it has "been through the trough and [is] now emerging as a leaner, more efficient growth company."
Merit Medical has several things that could improve its fortunes going into 2020. The company recently executed a contract with group purchasing organization (GPO) Premier that allows the GPO's members to purchase Merit's interventional fluid-management products.
It recently secured preferred provider status with a major medical device distributor. Merit also continues to move forward with cost-cutting initiatives.