Mindray Medical International: Waiting for a Pullback

In the ever growing Chinese economy, healthcare has taken center stage as more and more of the population now has access to first class physician services. Mindray Medical International Limited (MR) has been an integral part of this process through the three product lines it offers its customers. The company makes devices relating to 1) Patient monitoring, 2) Diagnostic lab instruments, and 3) Ultrasound imaging systems.

While the company has only been public on US markets for the last 9 months, It has a long profitable history dating back nearly a decade. New products are a vital part of this business and the company commits 10% of all revenue to research and development of these new ideas. Over the next few years, most of the growth will likely come from its color ultrasound machine which has only recently become available. Demand was so strong for this product upon launching that the company was briefly out of stock. It appears manufacturing has been able to catch up and the company was quickly back to selling the product which accounted for 50% of the sales growth last quarter.

While Mindray operates primarily in the China market, it has begun to diversify into other countries to increase revenue and diversify geographically. It is currently selling products in 120+ countries and has many of its products approved by the US FDA, or the European equivalent. For more developing countries, the company focuses on peddling its patient monitoring and diagnostic instruments, while more developed nations such as the US and many European countries, the company is able to sell its high tech new ultrasound machine with good success.

Looking at analyst expectations over the past year or so, it is easily noted that analysts typically underestimate the company's earnings power and constantly have to adjust future expectations higher. I expect this to continue for the next year or two at least as it appears a bit of conservatism is inherent in this industry. Even if the current consensus is correct, the stock is still not extremely expensive for the growth rate it is achieving. I would expect this growth to be fairly stable as the company is not relying on any one specific economy to drive business growth.

While I currently do not have a position in the company, I would look for a small pullback in the shares to buy stock. This is a disciplined approach that I use to minimize my risk in new positions and hopefully allow me to hold winning stocks longer without getting stopped out. I would not discourage someone from taking a position in this name as I believe the growth prospects are very appealing.

MR 1-yr chart

Disclosure: Author does not have position in MR