Our first idea is a medical device company that is growing at a double-digit rate. The shares are rated ‘Strong Buy’ by Zack’s, citing the company’s growth and rising estimates. Our second recommendation is a sale of a previous idea.
Buy: LeMaitre Vascular Inc (LMAT)
From Validea Hot List Newsletter
Strategy: P/E/Growth Investor
Based on: Peter Lynch
LeMaitre Vascular, Inc (LMAT) is a provider of medical devices for the treatment of peripheral vascular disease. The company’s product lines include valvulotomes, balloon catheters, carotid shunts, biologic vascular patches, radiopaque marking tape, anastomotic clips, remote endarterectomy devices, laparoscopic cholecystectomy devices, prosthetic vascular grafts, biologic vascular grafts and powered phlebectomy devices. Its portfolio of peripheral vascular devices consists of brand name products that are used in arteries and veins outside of the heart, including the Expandable LeMaitre Valvulotome, the Pruitt F3 Carotid Shunt, VascuTape Radiopaque Tape and the XenoSure biologic patch.
This methodology would consider LMAT a “fast-grower”.
P/E/GROWTH RATIO: PASS: The investor should examine the P/E (52.42) relative to the growth rate (36.41%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for LMAT (1.44) is on the high side, but is acceptable if all the other tests are met.
INVENTORY TO SALES: PASS: When inventories increase faster than sales, it is a red flag. However, an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for LMAT was 19.40% last year, while for this year it is 19.02%. Since inventory to sales has decreased from last year by -0.38%, LMAT passes this test.
EPS GROWTH RATE: PASS: This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for LMAT is 36.4%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered ‘OK’. However, it may be difficult to sustain such a high growth rate.
TOTAL DEBT/EQUITY RATIO: PASS: This methodology would consider the Debt/Equity ratio for LMAT (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company.
John Reese, Validea Hot List Newsletter, www.validea.com, 877-439-0506, June 2, 2017