Masimo: Profits in Patient Monitors

05/29/2017 2:54 am EST


John Reese

Founder and CEO, And Validea Capital Management

In his Validea newsletter, John Reese assesses stocks based on the investment strategies of legendary investors. Here, he looks at a stock that earns a 100% ranking based on the value investing strategy of Benjamin Graham.

Masimo Corporation (MASI) is a medical technology company that develops, manufactures and markets a range of non-invasive patient monitoring technologies.

The Company's business is Measure-through Motion and Low Perfusion pulse oximetry monitoring, known as Masimo Signal Extraction Technology (SET) pulse oximetry.

Its product offerings include non-invasive monitoring of blood constituents with an optical signature, optical organ oximetry monitoring, electrical, brain function monitoring, acoustic respiration monitoring and exhaled gas monitoring.

The company Patient SafetyNet remote patient surveillance monitoring system, which allows patients to be monitored through a personal computer-based monitor or by care providers through their pagers, voice-over-Internet Protocol (IP) phones or smartphones.

Masimo beat analysts’ earnings estimates by $0.22 last quarter. The company is expected to grow at double-digit rates for the next five years.

According to the Benjamin Graham model, the investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. MASI's sales of $709.8 million, based on trailing 12 month sales, pass this test.

The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. MASI's current ratio of 2.74 passes the test.

For industrial companies, according to the Graham methodology, long-term debt must not exceed net current assets (current assets minus current liabilities).

Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years.

Companies with this type of growth tend to be financially secure and have proven themselves over time. MASI's EPS growth over that period of 306.7% passes the EPS growth test.

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