Medical device manufacturer Arrow International's
Revenue as reported rose almost 7% -- more than 9% on a constant currency basis -- but this number is not quite what it seems. The company had to adjust how it accounts for its U.S. shipping practices, which took more than $4 million out of the year-ago quarter's sales. Adding that back cuts reported growth closer to 3%.
It's also true that Arrow's reported operating income growth of more than 150% isn't the whole story. Add back various items (stock-compensation expense this year and retirement and product discontinuation expenses last year) and it appears to this Fool that operating income growth was more like 1.5%.
Now, I'm not going to beat Arrow up over this decidedly modest growth. The company is still in the process of correcting for past management mistakes -- particularly underinvestment in capital infrastructure. And the company continues to expand its offerings in its core markets; new products include a central venous access kit and additional dialysis catheter offerings.
My biggest problem has mostly to do with valuation. Arrow is a fine company, but it's not really positioned in markets that will produce dynamic growth. What's more, there are some big-time competitors like Abbott Labs
I still expect that Arrow International will work through its production bottlenecks. My larger issue, though, is that the market seems to already have priced this in. In fact, it may be pricing in more growth than the company has historically proven able to deliver. In my book, then, I'd rather leave this stock in its quiver.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).