Masimo
Solomon's Select, by Mark Robertson, Managing Partner November 1st, 2011
MASI is a global medical technology company that develops, manufactures, and markets noninvasive patient monitoring products that improve patient care.
My sisters are nurses. They’ve made it quite clear to me that non-invasive is a very good thing in the trenches when it comes to making and keeping people healthy. We have another relative who was an executive with a health management company. In a presentation to a Puget Sound audience a few years ago, she elaborated on things like telemetry and continuous monitoring and the power of keeping track of health factors that matter. All of these lessons come home to me as I read about the non-invasive tools and systems developed and delivered by this month’s selection, Masimo (MASI).
Closer to the heart. That’s the title of the current annual report from the company. Masimo Corp. is a global medical technology company that develops, manufactures, and markets noninvasive patient monitoring products that improve patient care. The company invented Masimo Signal Extraction Technology, or Masimo SET, which provides the capabilities of Measure-Through Motion and Low Perfusion pulse oximetry to address the primary limitations of conventional pulse oximetry. It also develops, manufactures, and markets a family of noninvasive blood constituent patient monitoring solutions that consist of a monitor or circuit board and a proprietary single-patient use and reusable sensors and cables. In addition, it offers remote monitoring and clinician notification solutions, such as the Masimo Patient SafetyNet.
Growth
Value Line has a sales growth forecast of 14%. We’ve used a sales growth forecast of 14% based on a regression spanning 2007-2016.
Masimo (MASI): Sales Trend. The track record for Masimo is solid as shown here by the top line and bottom line results over the last few years.
Profitability
The trailing net margin (2007-2011) has been 15.7%. We’ve used 16.1% based on inclusion of analyst forecasts in combination with the historical trend.
Valuation
S&P’s fair value of $27.60 implies a “fair P/E” of approximately 21×. Based on consensus and industry analysis, we’ve used 25×.
At a stock price of $20.68, the projected annual return is approximately 20%.
The company has no long-term debt. The company has also paid a fairly hefty series of special dividends — a topic that we’ll likely explore in more detail in the Manifest Forum.
Ken Kavula has also shared that practitioners cite the reality that much of the company’s business has been centered on those intensive care units so familiar to my sisters. There’s considerable potential for expanding outside the ICU into more routine patient care and health maintenance programs.
We’ll keep this company on the proverbial short leash, incorporating a sell limit if the relative return drops to -10% going forward, but see potential in this razor blade model and will continue to explore competitive threats, etc. Staying close to the heart is generally a pretty good thing, but we know that our head a role in long-term investing, too.
Chronicle: Masimo (MASI). The projected relative return for MASI is in the “sweet spot”, between 5-10% (percentage points) greater than the Wilshire 5000. The stock price has been under pressure of late, leading to the elevated return forecast. Management shared the impact of a non-recurring military contract that was won last year at this time, cited current pressures but maintained an optimistic long-term outlook.
Mark Robertson
Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.