If you're a science fiction fan, you know about cyborgs -- a combination of organic and inorganic parts that supposedly creates a stronger whole. Well, that's basically the formula med-tech company Integra Lifesciences
Alas, those cyborgs in the pulp novels seldom live happily ever after, and I'm not entirely convinced that Integra will, either. While reported revenue growth was a gaudy 43%, organic growth seemed closer to 10%. I say "seemed" because management no longer wants to talk about organic growth, claiming that acquisitions sometimes cannibalize or enhance existing sales in a way that makes that metric misleading. Uh, OK. If you say so..
Because of the costs of both deals and stock-compensation expenses, assessing profitability is no easier. The whole stock-option-expense conundrum makes it difficult to know which set of numbers to use, so I'll briefly provide both. Gross margins were lower on an as-reported basis, and a bit higher on an adjusted basis. That's even truer for operating income -- income grew 8% by normal accounting, and 71% under the more favorable treatment.
I won't argue that Integra is building value through its acquisitions, but it strikes me as a diminishing type of value. If internal growth can't get the job done (and thus far, it hasn't), the company will be forced to find ever-larger deals. That gets both expensive and dilutive over time, and increases the risk of simply buying the wrong company or product at some point.
There are a lot of quality med-tech options out there. You can go big with an orthopedics company like Zimmer
For more Foolishness on the medical device industry:
- Zimmer Provides Quarterly Information, And More
- Aspect Gives Investors Nightmares
- Integra Adds Another Piece
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).