Masimo Corporation's Momentum Continues With Impressive Earnings Growth

Masimo systems in a hospital room.

Masimo Corporation (NASDAQ: MASI) has been on a roll so far in 2018. The company, which makes noninvasive monitoring technologies, posted great results in the first quarter and in the second quarter. Demand for its pulse oximetry equipment has been exceptionally strong throughout the year.

Any questions about whether or not Masimo's momentum could continue were put to rest on Wednesday with the company announcing its third-quarter results after the market closed. Masimo once again gave investors what they were looking for.

Masimo results: The raw numbers

Data Source: Masimo.

What happened with Masimo this quarter?

There were two components to Masimo's revenue figure. The bad news was that revenue from royalties fell nearly 37% year over year to $8.5 million. The good news, though, was that Masimo made a lot more money from its noninvasive technology products -- and those sales jumped 12.4% over the prior-year period.

Masimo's bottom line showed particularly impressive improvement in the third quarter. The company's revenue growth played a key role in its increased earnings. Masimo's cost of goods sold also remained nearly flat year over year, boosting its gross profit considerably.

Uncle Sam helped Masimo's year-over-year comparisons quite a bit as well. The company paid around $7.5 million in income taxes in the third quarter of 2017. In the last quarter, however, Masimo received an income tax benefit of nearly $7.5 million.

The company's adjusted earnings per share again soared from the prior-year period. This adjusted growth was lower than that of Masimo's GAAP net income increase, though, primarily due to the impact of excess tax benefits from stock-based compensation.

What management had to say

Masimo Chairman and CEO Joe Kiani stated:

Looking forward

As Kiani's comments indicated, Masimo bumped up its full-year 2018 guidance for the third time this year. The company now expects revenue of $854 million, up from its previous guidance of $850 million. Masimo also projects 2018 diluted earnings per share of $3.37, well above the $3.07 estimate provided in its previous outlook.

The company continues to see the payoff from its efforts to improve profitability. Masimo also continues to pick up new customers, with its SET Rainbow pulse oximetry products proving to be especially popular.

Masimo's shares now trade at nearly 38 times expected earnings. Stocks with that kind of lofty valuation can be hit hard when there's bad news. A continuation in the broader market could hurt Masimo, but the company's business prospects appear to be stronger than ever.

10 stocks we like better than Masimo

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Masimo wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Masimo. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.