"Buy the stocks of good companies" sounds like good advice, but the reality can get really tricky when it comes down to issues like valuation. Merit Medical (NASDAQ:MMSI) is a good case in point. This company makes most of its money in markets that aren't really seen as growth opportunities and hasn't generated double-digit operating margins in quite some time. Yet, even a very modest 2x multiple to 2014 revenue suggests at least 10% upside, and the company may well see meaningful growth from products designed for radial access.
I'm inclined to be positive on Merit Medical, but the low margins, lack of free cash flow generation, and weak returns on invested capital are all reasons for pause....
|FREE||SA PRO MEMBERS|
|IDEA GENERATOR||X||Exclusive access to 10 PRO ideas every day|
|INVESTING IDEAS LIBRARY||X||Exclusive access to PRO library of more than 15,000 ideas|
|SECTOR EXPERT NETWORK||X||Exclusive access to all sector experts for direct consultation|
|PERFORMANCE TRACKING||X||Track performance of all PRO stock ideas|
|PROFESSIONAL TOOLS||X||Professional Idea Filters to zero-in based on industry, market cap and more|