Finding out that a baby is on the way can inspire a multitude of reactions from the baby's parents: joy, shock, relief -- but rarely apathy.
Not so with Natus Medical's
The usual suspects
The typical causes for the first apathetic, then overtly hostile, investor reaction were nowhere to be found last week. Natus missed neither analysts' earnings guidance nor their sales guidance. On the contrary, the company beat estimates by a penny and booked $500,000 more in sales than the Street had projected.
Nor did the company frighten the market with dire predictions of a bleak future. On the contrary, Natus upped its sales guidance for Q3 and raised both its sales and earnings guidance for the rest of this year. Natus now expects to make at least $81.5 million in sales and earn at least $0.31 per share, pro forma.
Let's be clear about what "pro forma" means here, since the term varies with who is using it. Natus includes the cost of expensing stock options, but excludes the non-cash write-off of in-process research and development related to its acquisition of Bio-Logic. Subtract the $0.29-per-share hit to GAAP earnings necessitated by that write-off, and Natus looks forward to earning $0.02 to $0.05 for the full year, in GAAP terms.
That bad news, however, is already three months old, and it was not likely the reason Natus sold off last week.
So were there any unusual suspects?
Not that I can see. During the conference call, executives said everything was going according to plan. Natus confirmed that it has completed its integration of Bio-Logic. Both Natus' own and Bio-Logic's products have gained market share. Sales growth rates at both businesses approximated 12% year over year, in the middle of the firm's long-term target of 10% to 12% annual organic growth. Add to that the fact that management is beginning to raise the average sales price of its products, and it logically follows that earnings growth will accelerate even faster.
Honestly, if there was bad news in this report to justify the sell-off, I'm at a loss to find it.
Natus Medical is just one of the 100-plus "runner-up" stocks on the Motley Fool Hidden Gems Watch List. Since first being mentioned in Hidden Gems in May 2004, the stock has turned into a two-bagger for our readers. Learn more about the Watch List, and peruse the more than six dozen stocks in the official Hidden Gems portfolio, when you take a free trial of the service today.
Fool contributor Rich Smith owns shares of Natus Medical. The Motley Fool has a disclosure policy.