"I just love to find a monopoly that provides real value in an important and growing area," says the Dave Dyer, referring to Natus Medical (NASDAQ: BABY).
In his Dave Dyer's Newsletter, he explains, "Natus is, a maker of equipment used to test the hearing of newborn infants; its equipment tested 90% to 95% of the 4.3 million babies born in America last year."
"Natus' equipment is sold to hospitals and clinics, and BABY also gets $9 in revenue for consumables from each test. This is an important test for infants to have. Hearing impairment is the most common treatable impairment in newborns, affecting 5 in every 1,000 babies.
"Prior to BABY’s testing, it would turn up much later when the child was having learning problems, so this test is really valuable. And because babies tend to show up on a regular basis, the company is largely immune to economic trends.
"Like any good monopoly, they are expanding by selling new products to their existing customers. They have been acquiring other companies with products for the infant market so that they can optimize the sales relationships they have developed with hospitals and clinics.
"New products include scales, neurology diagnostic equipment, jaundice treatment units, and head-cooling products to treat brain injuries. Since 2004, they have acquired seven companies.
"The real growth opportunity is in foreign markets. Only about 25% of infants in Europe are currently screened for hearing problems.
"There are 10 million babies born in developed countries outside the U.S. each year and this is the target market. BABY currently sells equipment in 80 countries, and international revenue is the fastest growing segment of their business.
"BABY has been profitable every year since 2004 and they have very little debt despite all the acquisitions. Their rate of revenue growth has been accelerating over the past year (19%, 36%, 41%, and 45%) although this may be a bit misleading due to the acquisitions.
"Management owns 9% of the outstanding stock, and that is always a good sign. Also, the number of institutional owners has doubled over the past year.
"The stock performed well from 2003 through early 2008 and then was cut in half during the bear market despite improving fundamentals. Bear markets can create opportunities for investors who pick the right time to buy.
"The stock has been displaying some strength in the recent weeks. Although this move has been on low volume, it could be the start of a new uptrend. If the general market stabilizes, BABY should be one of the leaders."
