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Why Merit Medical Systems Stock Soared Today

By Keith Speights - Nov 1, 2019 at 5:01PM

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Some investors appeared to think that yesterday's sell-off was way overdone.

What happened

Shares of Merit Medical Systems ( MMSI 1.56% ) 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.

So what

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.

Businessman holding up a red arrow that's pointing upwards.

Image source: Getty Images.

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."

Now what

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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