Natus Medical (NASDAQ:BABY), a maker of infant health screening equipment (and a Hidden Gems Watch List stock), set the bar high for itself last quarter when it projected $8.7 to $9.0 million in third-quarter revenue and earnings from continuing operations of $0.03 to $0.04. In a series of highly hypothetical back-of-the-envelope calculations, I figured that in order to hit its target, the company needed to execute three successive steps: (1) hit $9 million in revenues minimum, (2) reestablish a 60% gross margin, and (3) keep operating expenses around $4.9 million.

So how did the little guy do? Pretty well, actually. First, Natus hit the top of its revenue target, increasing its sales by 18% to reach an even $9 million on the back of a 70% increase in international sales. The company couldn't quite push its gross margins over the 60% mark, making it only as high as 57.1%. But Natus made up for that by doing even better than I had anticipated in slashing its operating costs -- it got them down to just $4.7 million. As a result, Natus still delivered on its promise of at least $0.03 in earnings from continuing operations.

Year-to-date, the results remain more mixed. Revenues rose 21% in comparison with the year-ago period. Meanwhile, the company's GAAP loss widened from last year's $0.19 to this year's $0.23.

As for next quarter, Natus projects a continued trend onward and upward. It bumped its revenue estimates up to $10 to $10.3 million, while holding its profits prediction steady at $0.07 to $0.09 per share (creating the possibility of an end-of-year "earnings surprise"). And for the year to come, Natus expects revenues of from $41 million to $43 million to translate into diluted per-share profits of $0.26 to $0.28.

Valuation-wise, that would give Natus a forward P/E of 26 (I'd work an EV/FCF for you, but Natus remains free cash flow-negative). Even with its stock trading at just $7 a stub, that seems a bit pricey. If your appetite for risk can stomach an even smaller-fry competitor of Natus, though, you may find a better bargain in tiny Bio-Logic Systems (NASDAQ:BLSC). That one's already profitable, and it has very nice free cash flow to boot -- giving it a price-to-free cash flow ratio of about 10 and an EV/FCF of under 6.

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Fool contributor Rich Smith owns no interest in either of the companies mentioned in this article.