DObviously growth investors are arguably best served by building a diversified portfolio of quality stocks in industries poised for promising future growth.
Investors should search long and hard to find a stock that better fits this description than the small cap medical device stock. The Vascular Master (NASDAQ: LMAT). The stock just announced a 13.6% increase in its quarterly dividend per share to $0.125.
But is this under-the-radar small-cap stock currently a buy? Let’s take a closer look at LeMaitre’s fundamentals and valuation to decide.
The fundamentals remain solid
LeMaitre manufactures devices, such as angioscopes and catheters, for the treatment of peripheral vascular disease. The company recorded impressive growth in 2021. Net sales totaled $154.4 million, representing a growth rate of 19.4% over the previous year. What are the factors driving LeMaitre’s strong sales growth in 2021, despite COVID-19 related disruptions in elective procedures throughout the year?
One of the contributors was the company’s $90 million acquisition of the vascular graft brand known as Artegraft in June 2020. LeMaitre enjoyed a full year of brand contributions in 2021 Artegraft’s products are used in lower extremity bypass and arterial trauma procedures. Artegraft’s additional six months of revenue and price increases in January 2021 were responsible for approximately 56% of total revenue growth for the year, or $14.1 million.
Increased net sales of LeMaitre bovine carotid patches, carotid shunts and allograft services accounted for approximately 24% of the company’s net sales growth for the year, or $6.1 million.
Higher net sales of valvulotomes contributed an additional $3.4 million in net sales growth, representing approximately 14% of net sales growth. The eponymous LeMaitre valvulotome is used in coronary bypass procedures and in situ peripheral bypass procedures.
LeMaitre converts its overseas sales to US dollars, which have recently weakened against many other currencies. And since about 40% of the company’s net sales come from outside the United States, its net sales increased by $2 million. That dented the rest of LeMaitre’s net sales growth.
LeMaitre’s diluted earnings per share (EPS) increased 20.2% year-over-year to $1.25 in 2021. In addition to its higher net sales base, two factors account for the earnings growth of the company. First, LeMaitre’s net margin increased by 100 basis points to 17.4% during the year. LeMaitre’s improved profitability was partially offset by a 4.9% increase in its weighted average number of shares to 21.5 million for the year.
In 2022, LeMaitre forecasts around $164 million in revenue. That would equate to 6% growth over 2021. And the company also expects approximately $1.40 of diluted EPS for the year, which equates to 12% growth over 2021. Put simply, the outlook for LeMaitre’s growth remains encouraging based on its forecast for this year. year.
A long-term debt-free balance sheet
Proceeds from shares issued by LeMaitre last July were used to shore up its balance sheet by repaying its long-term debt in full. Now that the company has no long-term debt and a record balance of $70 million in cash and short-term marketable securities, it has room to make smaller acquisitions to boost its earnings.
This significant liquidity also explains why LeMaitre announced a $20 million share buyback program at the end of February. This will help reduce the number of shares outstanding by 2% at the current share price of $47, which will also increase the company’s diluted EPS.
Strong dividend growth is expected to persist in the future
If LeMaitre’s healthy 2022 outlook and fortress-like balance sheet weren’t enough, the stock also has a dividend payout ratio that should allow for payout increases going forward.
This is because LeMaitre’s payout ratio in 2021 was only 35.2%. This gives the company the opportunity to increase its online payment with or slightly ahead of its profits. And since I expect LeMaitre to generate low double-digit annual earnings growth in the medium term, I think similar dividend growth is a realistic assumption going forward.
Coupled with the nearly market-matching 1.1% dividend yield, LeMaitre offers a lot to like for dividend investors over time to allow their income to accumulate.
The valuation does not seem excessive
Quality LeMaitre stock is rarely cheap. And while the stock is by no means a bargain right now, it still looks like a buy.
Indeed, LeMaitre’s price-to-earnings (P/E) ratio of 30.8 is only moderately higher than the medical device industry’s average P/E ratio of 26.9. Given that LeMaitre is arguably superior to his industry peers, this 14% premium seems justified.
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Kody Kester has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. 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.