If there's any such thing as a company that investors can root for unreservedly, Natus Medical (NASDAQ:BABY) is it.

Forget the cute ticker. Lots of companies have clever tickers -- Southwest Airlines (NYSE:LUV) and Oakley (NYSE:OO) come to mind. What you have to love about Natus is its mission: helping screen newborn infants to discover medical disorders early and save children's lives.

Still, investors need to be practical and not let their hearts rule their wallets. You can admire clean-fuel dreamers like Ballard Power (NASDAQ:BLDP) and genome-mappers like Applera (NYSE:CRA) all you want, but investors in those stocks have been badly burned in recent years. So with that in mind, let's take a clear-headed look at Natus' second-quarter 2004 earnings results released yesterday.

On the surface, Natus' results look pretty disappointing. Revenues rose 19% over the second-quarter 2003. Yet diluted earnings per share worsened, from a loss of $0.07 last year to a loss of $0.22 this year.

Still, this is just the surface view. Peel back $2.2 million in charges that the company took for discontinuing operations, restructuring, and paying severance to a departing CEO, and that per-share loss would have been only $0.08. If you want to look at the numbers in a different light, then after subtracting out the one-time costs, consider adding back in the $700,000 that Natus expects to save on salaries, post-restructuring. Had it been able to do that this quarter, the loss would still have been $0.04.

So when Natus predicts it will earn aprofit of $0.03 to $0.04 next quarter, what's a Fool to think? I suspect you have to assume two things. First, that Natus will hit the top of its $9 million revenue target next quarter. Second, that it will overcome the cost overruns and other problems encountered this quarter, to not only regain the gross margins it was earning a year ago, but improve upon them.

Assume all of that, and then assume Natus' operating expenses will approximate what they were a year ago -- $5.6 million -- minus the $700,000 in salary savings. If Natus can again achieve last year's 60% gross margin (a feat that has eluded it over the past four quarters), and if operating costs are no more than $4.9 million, then on $9 million in revenue, the company could conceivably earn a $500,000 profit. That would equal per-share diluted earnings of $0.03 per share. To reach its upper earnings target of $0.04 per share, therefore, Natus will need to increase gross margins even more, slash operating costs, or beat its own revenue assumptions -- or some combination of the three.

Fool contributor Rich Smith owns no shares in any company mentioned in this article.