It has been nearly six months since the stock of Motley Fool Hidden Gems recommendation Cantel Medical
Since that dark day, Cantel's shares revived a bit before beginning another long slump toward present-day levels, at which they still fetch barely 60% of their price in early June. However, the infection control and diagnostic equipment manufacturer published further gloomy news Thursday in its earnings report, and as a result, the stock is trading lower today.
For its first quarter of fiscal 2006, Cantel grew its sales by 33% in comparison to its year-ago levels, and its earnings increased 21%. On its face, double-digit growth in both revenues and profits might seem to be good news. But sadly, it isn't.
For one thing, almost all of the sales growth turns out to be "inorganic," meaning that it's both non-carbon-based and not internal to the company's core operations. Fully 29% of the sales increase came from Cantel's purchase of Crosstex back in August, and only 4% of the growth was by Cantel proper. Meanwhile, if you'll look at those increase numbers once more, you'll notice that they're in the opposite proportions from what we'd normally expect to see in a healthy business.
Bottom line: Cantel's earnings growth didn't come anywhere near to approaching its growth in sales, so those sales weren't terribly profitable ones. Worse still was the fact that the company has increased its share count by 4.4% over the past 12 months, and that, as a result, its earnings per diluted share grew just 15% -- half as positive as the sales growth.
At this point in a column, I'd ordinarily like to highlight a few points in the company's favor, but I cannot. Cantel's report only gave us the bad news. Any possible good news -- Inventories growing more slowly than sales? Free cash flow outpacing GAAP profits? -- is hidden by the company's laconic earnings announcement. Not only does Cantel not provide cash flow statements with its earnings reports, it also doesn't provide a particularly detailed balance sheet.
Sadly, therefore, Fools must await the company's 10-Q filing with the SEC to learn whether there are any redeeming points in this quarter's results. Expect to see this filing appear here within about a week.
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Fool contributor Rich Smith does not own shares of any company named above.