Stephen Simpson, CFA
Long only, growth at reasonable price, value, research analyst

Expectations For Merit Medical Still Seem A Little Low

"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....

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