They call it a haircut, but apparently Motley Fool Hidden Gems recommendation Cantel Medical's (NYSE:CMN) barber got a bit carried away. The infection control and diagnostic equipment company missed analyst estimates by $0.03 for the quarter, so the share price has been knocked down almost 40% since the earnings release.

On that basis alone, I'm almost willing to buy shares, but let's look more closely at what is going on with the business before we start reacting like day traders.

Cantel has grown its diverse businesses by methodically enacting a series of strategic acquisitions. Along with equipment marketed and distributed through an agreement with Olympus America, a Canadian manufacturer of surgical products, Cantel's product lines address the rising incidence of diabetes.

What's weighed heavily on Cantel was the announcement made with its earnings report that its distribution agreement with Olympus would be terminated next year since its product sales were being taken in-house. It's something of a blow to Cantel.

For fiscal year 2004, Olympus represented 28% of Cantel's revenues, while for the first nine months of 2005 it accounted for 31% of $145.4 million in sales. That's a big chunk of change the company will have to make up elsewhere. The two companies' products were also complementary -- Olympus' endoscopes, for example, were an easy sell with Cantel's endoscope disinfectants. Ameliorating the loss somewhat will be a $6 million separation payment Olympus must make, along with repurchasing the inventory, customer names, and such. In total, Olympus will pay Cantel around $15 million.

This is certainly not good news for Cantel. When 30% of your revenue base goes away unexpectedly, it's difficult to reestablish it. What's more, this past quarter wasn't stellar in terms of organic growth, with revenues up only 8%, following on the heels of first and second-quarter growth of 23% and 20%, respectively. Last year's third-quarter growth was 43%, so the comps were at any rate a bit tough. Yet Cantel has improved its cash position while reducing its long-term debt, and is about to receive another $15 million that it, all else being equal, didn't really want.

More troublesome will be the decimation it serves up to CarsenGroup, Cantel's subsidiary where Olympus' products accounted for 80% of revenues. Carsen represents two segments of Cantel's business, and in response to the news, Cantel's management has said it will review them to determine their viability. It's a good guess that we'll face more acquisitions to shore up the deficiency at Carsen. Given Cantel's cash pile, and the separation money coming its way, the company certainly has the ammunition to do so.

The market's reaction to the news seems a little overwrought. Sales were up, though minimally, and the agreement with Olympus stays intact until July 2006. There's plenty of opportunity for Cantel to make a strategic acquisition or land a new agreement to replace Olympus.

Fool contributor Rich Duprey does not own any stocks mentioned in this article. The Fool has a disclosure policy.