The world of biotech is littered with small-cap stocks you probably haven't heard of. While many of these companies are promising new enterprises working to develop a new drug or product, there are a noticeable number of small-cap biotech stocks that have been around for quite a while.

Natus Medical (NASDAQ:NTUS) is one company that has a lengthy history but hasn't gotten much attention. With the niche biotech company having gone through a significant restructuring effort to try and trim operational costs, is now the time to add this company to your portfolio?

A baby has their heartbeat taken by a doctor

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A snapshot of the business

Natus Medical was founded back in 1987 and first went public on the Nasdaq in 2001. Despite being around for quite some time, Natus has never managed to break out of being a small-cap stock, despite seeing its stock price rise significantly between 2005 and 2015.

The company specializes in equipment and software used to screen and diagnose neurological conditions in adults as well as infants. Neurology is the company's largest business segment, accounting for around 60% of all revenues. This includes electrodiagnostic equipment to detect conditions such as epilepsy and sleep disorders. At the same time, the company also offers neurosurgical tools for surgeons, such as valves, implants, and catheters.

Infant care represents around a quarter of all sales and includes equipment that can diagnose brain injuries in newborns as well as other issues, such as hearing loss. On that topic, Natus' last and smallest segment is its hearing and balance care business, which is primarily targeted toward older patients and accounts for around 15% of the company's total revenue. This includes hearing and balance assessment tools as well as corresponding software. 

Looking at the financials

Natus Medical's primary clients are hospitals and laboratories, alongside some specialized clinics. While Natus emerged as one of the leaders in the field of neurodiagnostic equipment, the company has been struggling to grow revenue over the past few years.

Looking at its most recent results, Natus' first quarter 2020 financials saw sales hit $109.4 million, a $5 million decline from the first quarter of 2019. While gross margins of 57.4% are reasonable, that hasn't stopped the company from reporting a net quarterly loss of $3.6 million. To be fair, that is still a massive improvement from the $30.4 million net loss reported around the same time last year. Much of last year's losses were due to restructuring costs, which came in at $37.4 million in the first quarter of 2019 in comparison to the $871,000 seen this quarter.

However, that's not to say that Natus will necessarily be on track to make a profit by the end of 2020. Management has warned that the COVID-19 pandemic is expected to further disrupt the company's revenue figures. Natus Medical's primary customers -- hospitals -- are expected to reprioritize their budgets with a focus toward treating COVID-19 rather than buying new neurodiagnostic equipment. This expected decrease in revenue could mean that Natus might not be profitable this year at all, depending on how long this pandemic lasts.

Confused man with question marks above his head.

Image source: Getty Images.

What should investors think?

When it comes to small-cap biotech stocks that aren't profitable, it's expected that the company should be either growing quickly or at least preparing to grow significantly in the near future.

However, not only has Natus failed to report a profit for a while now, revenue figures have declined from earlier highs. Back in the first quarter of 2017, the company reported $124.7 million in quarterly revenue, all the while managing to eke out a slim profit of $348,000. The fact that sales have shrunk isn't a good sign at all, especially for a niche biotech company that has a strong foothold in its main market.

However, even if things were originally supposed to get better for Natus Medical, this pandemic has put a wrench in the company's plans. With demand for Natus' products expected to see a stark decline in 2020 as hospitals around the world focus on treating COVID-19, it's hard to see why now would be a good time to buy shares of this stock.

Maybe in 2021, when this pandemic hopefully settles down, it might be worth reconsidering Natus Medical as a potential investment. As of right now, however, there are other small-cap biotech stocks that are more deserving of your attention.