Now granted, a lot of that came from extrinsic growth -- Natus has added seven companies over the last four years -- but the company still had intrinsic growth approaching 12.5% this quarter. And the companies it's adding are contributing nicely to the bottom line as well; net income in the quarter rose 62% year over year.
Gross margin in the quarter was down due to the addition of Excel-Tech's lower margin products, but the company was able to save costs elsewhere so that total operating expenses for the second quarter were just 46.9% of revenue, down from 52.6% year over year.
The operating and bottom-line improvements should only continue as the realignment of Natus's sales force and consolidation of its product development proceeds. This is expected to save $2.4 million a year beginning next year. That amount of savings hardly falls outside the rounding error for large medical device companies Johnson & Johnson
The extrinsic growth isn't over yet. Natus raised almost $100 million in recent secondary offerings and, after paying off some debt, still has $77 million to buy a company or two. Management says it has a list of companies it's looking at, but won't take the plunge unless the addition can add to the bottom line quickly.
Natus is up about 60% since it was recommended to readers of our Motley Fool Hidden Gems newsletter, but that doesn't mean it still isn't a good deal. It's price to trailing-12-month earnings ratio is a little steep at about 50, but management has so far proven that it deserves that higher multiple, growing earnings both internally and extrinsically.
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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Johnson & Johnson is a selection of the Income Investor newsletter. The Fool has a disclosure policy.