Provided that your portfolio is diversified to properly hedge against the risks associated with investing in stocks, it merely takes time, patience, and some well-thought-out picks to grow richer.
One stock that has worked out considerably well for its investors is LeMaitre Vascular (LMAT -0.31%). A $10,000 investment in the niche medical device company made just 10 years ago would now be worth $120,000 with dividends reinvested -- nearly quadruple the S&P 500's return over that time.
But does LeMaitre have the potential for huge, market-beating returns moving forward? Let's elaborate on the medical device company's fundamentals and valuation to make a judgment.
The top player within its niche
LeMaitre Vascular has stayed the course in vascular medical devices and resisted the urge to branch out into the unknown. This discipline of sticking with what the company knows best has paid off. LeMaitre has emerged with No. 1 or No. 2 share in nine of the 12 markets in which it competes (i.e., carotid shunts, radiopaque tape, and anastomotic clips).
Because the company focuses solely on vascular medical devices, it can stay attuned to the needs of vascular surgeons. That explains how LeMaitre's products have come to be used by more than half of the 22,000 vascular surgeons around the world. The significant competitive advantage resulting from this strategy has led to 12% compound annual growth in the company's sales over the last five years.
LeMaitre likely has ample room for future growth as well. This is because an expanding sales force, future regulatory approvals, and room for further price increases could each be growth catalysts in the years ahead. Analysts are anticipating double-digit annual growth in the company's diluted earnings per share (EPS) for the next few years.
Image source: Getty Images.
Rapid top-line growth in Q1
LeMaitre continued to deliver strong results in its first quarter. The company's sales climbed 19% year over year to $47.1 million during the period. Those results were driven by across-the-board strength in its business. Most of the company's products recorded double-digit growth for the quarter in most geographies. And when adjusting for the nearly 3% foreign currency exchange headwind caused by the robust U.S. dollar, LeMaitre's currency-neutral sales were up by an even better 21.7% clip in the quarter.
The Massachusetts-based company's diluted EPS decreased by 0.7% over the year-ago period to $0.27 during the first quarter. This isn't because of any major issues in my opinion. It's more a matter of LeMaitre hiring additional sales reps to expand its business, which raised operating expenses immediately. It will just take time for the company to reap the benefits of this move.
The dividend has plenty of upside in its future
LeMaitre's 0.9% dividend yield is barely half of the S&P 500 index's 1.7% yield. At first glance, this doesn't seem attractive to dividend investors. But the dividend growth is enough to knock the socks off even the strictest dividend growth investors. The company's quarterly dividend per share has rocketed higher by nearly 370% over the past 10 years. And with the dividend payout ratio poised to come in at under 47% in 2023, the generous dividend growth should continue.
A reasonable valuation for a proven compounder
In valuing shares of LeMaitre, it's important to remember that world-class businesses hardly ever appear cheap. Yet, that doesn't stop them from trouncing the broader market because they deserve higher valuation multiples.
LMAT PS Ratio data by YCharts
As shown above, LeMaitre's current price-to-sales ratio of around 8.4 is near the top of where it has traded in recent years. But the company's sales growth is showing signs of accelerating. This is why I believe the current $64 share price is reasonable enough for dividend growth investors to buy the stock now and add on any future weakness.
