Natus Medical Incorporated (NASDAQ: BABY) shareholders probably haven't been too happy with the stock's performance in 2016. Shares of the medical device company are down more than 20% year to date. What's going on with Natus, and what might the future hold? These four charts tell the story.
Image source: Getty Images.
Not just about babies
Despite the company's ticker symbol of BABY, Natus isn't just about medical devices and services for the care of infants. Actually, Natus focuses more on other products than it does newborn care products.
Data source: Natus Medical 10-Q. Chart by author.
Nearly two-thirds of Natus' revenue in the first three quarters of 2016 stemmed from the company's neurological products business. This isn't a new phenomenon: Natus has had a similar revenue mix for the last several years.
Natus' neurological products include EEG monitors and sleep diagnostic equipment. Its newborn care products include brain monitors, jaundice management systems, and hearing screeners. Natus competes against a range of companies across all of its product lines, from small private-held medical device manufacturers to large international corporations.
Natus' financial performance over the last few years has been something of a mixed bag. First, the bad news: Revenue growth hasn't been consistent.
Revenue in the first nine months of this year is actually down a little from the prior-year period. One major factor behind this decline was that Natus placed a voluntary hold on shipments of some of its newborn care products because of "deficiencies in its engineering and manufacturing quality processes" at its Seattle facility. The other issue is that the company has seen lower sales of its neurological products.
There is good news for Natus, however. Earnings have taken off over the past three years.
The catch, though, is that recent earnings growth has been spurred in large part by paying less in income taxes. Natus has benefited tremendously from a shift of more revenue to countries outside of the U.S. that have lower tax rates.
Perhaps the biggest story for Natus Medical over the past couple of years or so relates to the company's acquisitions. Natus has been on something of a shopping spree.
Data source: Natus Medical. Chart by author.
While most of its past acquisitions have been relatively small deals, Natus' most recent announcement that it planned to buy GN Otometrics is significant. Natus is acquiring the business unit from Danish medical device companyGN Store Nord for $145 million.GN Otometrics has annual revenue of around $110 million.
Natus expects this latest acquisition to propel its total revenue to around $500 million in 2017. The company also thinks that the deal will be accretive to earnings next year.
Natus seems headed toward becoming less of a newborn care company than ever before. The GN Otometrics deal will shift the company's product mix considerably. It will also provide a big boost to Natus' top and bottom lines.
That should be good news over the long run for shareholders. Although Natus' earnings growth has been impressive, the fact that it came mainly from paying lower taxes doesn't exactly give investorsa warm and fuzzy feeling.
After the shellacking this year, Natus' stock appears to now have an attractive valuation, considering its potential for growth. I think 2017 should prove to be a much happier year for shareholders than 2016 has been so far.
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Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Natus Medical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.