Over the past couple of years, Arrow International
Sales were up 6% from $454.3 million in fiscal 2005 to $481.6 million in fiscal 2006. Management forecasts fiscal 2007 sales to be up another 7% to 9%. There was strength in both its critical-care and cardiac-care business. Growth was particularly noticeable in the European markets, where sales were up over 12% for the year. The capacity constraints on sales growth seem to be subsiding now that both the new facilities in the Czech Republic and Mexico are up and running.
On the margin front, the story is also improving. For the full year, profit and operating margins both improved from 8.7% to 11.6% and 11.9% to 16.4%, respectively. Although not back to historical levels, the company's return on shareholders' equity improved to 10.5%. I suspect more improvements in margins should come as production ramps up at the new facilities.
I think it's safe to say that Arrow has done a good job improving its business position. The problem (for me) is that the market is overly impressed. I have a hard time getting excited about paying over 20 times forward earnings on what has been historically moderate single-digit sales growth. The margin expansion is appealing, but with competition like Medtronic
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Fool contributor Matthew Crews welcomes your feedback. He has no financial position in any company mentioned.