Masimo (MASI): A Critical Review of the Company's Performance Post Q4 Earnings

In the past six months, Masimo's stock has witnessed an impressive surge of 45.8%, reaching a price of $167.70. This growth can be attributed to the company's strong quarterly results and the overall market sentiment. However, investors are now left pondering whether this momentum is sustainable or if it presents a risk to their portfolio.

A Closer Look at Masimo's Performance

While Masimo has made significant strides in the development of noninvasive patient monitoring technologies, including its breakthrough pulse oximetry systems, our analysts have identified several concerns that may impact the company's growth prospects. In this article, we will examine three key reasons why we believe investors should exercise caution when considering Masimo.

1. Weak Constant Currency Growth Points to Soft Demand

Investors interested in Patient Monitoring companies often track constant currency revenue alongside reported revenue. This metric is essential as it excludes currency movements, which can be influenced by factors outside of the company's control. Over the last two years, Masimo's constant currency revenue averaged 4.7% year-on-year growth, slightly lagging the sector.

This performance raises concerns about potential soft demand for Masimo's products and services. To accelerate growth, companies often need to invest in product improvements or lower prices. While these strategies can be effective, they can also hinder near-term profitability. Our analysts believe that Masimo may face challenges in maintaining its current revenue trajectory.

Masimo Constant Currency Revenue Growth Over the Last Two Years

| Year | Revenue Growth | | --- | --- | | 2022 | 4.8% | | 2023 | 4.6% | | Average | 4.7% |

2. Revenue Projections Indicate Stormy Skies Ahead

Forecasted revenues by Wall Street analysts provide valuable insights into a company's potential growth prospects. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices, while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Masimo's revenue to decline by 27.6%, a decrease from its 1.4% annualized growth for the past two years. This projection does not excite our analysts and suggests that Masimo's products and services will face significant demand headwinds.

Forecasted Revenue Growth Over the Next 12 Months

| Analyst | Revenue Growth | | --- | --- | | Average | -27.6% |

3. New Investments Fail to Bear Fruit as ROIC Declines

A company's Return on Invested Capital (ROIC) is a critical metric that measures how much operating profit it generates compared to the money it has raised through debt and equity. Our analysts prefer companies with high returns, but the trend in a company's ROIC can often surprise the market and impact stock prices.

Over the last few years, Masimo's ROIC has decreased significantly. While management has made significant investments in the past, our analysts believe that these efforts may not yield the desired results.

Masimo Trailing 12-Month Return On Invested Capital

| Year | ROIC | | --- | --- | | 2022 | 15.6% | | 2023 | 14.1% | | Average | 14.8% |

Conclusion

In conclusion, while Masimo has made significant strides in the development of noninvasive patient monitoring technologies, our analysts have identified several concerns that may impact the company's growth prospects. The weak constant currency growth, declining revenue projections, and decreasing ROIC all raise red flags about Masimo's ability to sustain its current momentum.

We believe that investors should exercise caution when considering Masimo and explore alternative investment opportunities with more promising growth prospects. Our analysts suggest looking at top digital advertising platforms riding the creator economy or exploring our curated list of High Quality stocks that have generated a market-beating return of 175% over the last five years.