Thinking About Masimo (MASI)? We Studied It, so You Don't Have To.

Masimo was one of the market's biggest losers today, losing 3.7% of its value and underperforming both the S&P500 and Dow Industrial composite indices by -0.0%. The mid-cap Health Care company ended the day at $85.29, closing in on its 52 week high low of $84.33 and is 34.71% below its average target price of $130.63. Over the last 12 months, Masimo is down -41.0%, and has underperformed the S&P 500 by 57.0%. The stock has an average analyst rating of buy.

Masimo has a trailing 12 month price to earnings (P/E) ratio of 41.4, which corresponds to its share price divided by its trailing earnings per share (EPS) of $2.06. The company's forward P/E ratio is 21.9 based on its forward EPS of $3.9.

Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. By way of comparison, the Health Care sector has historically had an average P/E ratio of 24.45. Whether the company's P/E ratio is within a high or low range tells us how investors are currently valuing the stock's earning potential, but it doesn't tell us how its price will move in the future.

Another metric for valuing a stock is its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the sum of all of the company's tangible assets and liabilities. Masimo's P/B ratio of 3.44 indicates that the company is fairly valued when compared to the Health Care sector's average P/B ratio of 4.16.

To understand Masimo's business, and therefore its attractiveness as a potential investment, we must analyze its margins in two steps. First, we look at its gross margins, which take into account only the direct cost of providing the product or service to the customer. This enables us to determine whether the company benefits from an advantageous market position:

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2023-03-01 2,035,800 -977,000 52 -20.0
2022-02-16 1,239,200 -430,800 65 0.0
2021-02-23 1,143,700 -400,700 65 -2.99
2020-02-19 937,837 -308,665 67 0.0
2019-02-26 858,289 -283,397 67 1.52
2018-02-28 790,248 -268,216 66
  • Average gross margins: 63.7 %
  • Average gross margins growth rate: 0.0 %
  • Coefficient of variability (lower numbers indicate more stability): 9.1 %

Next, we consider the Masimo's operating margins, which take into account overhead. This tells us whether the company's business model is fundamentally profitable or not:

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2023-03-01 2,035,800 -848,800 10 -54.55
2022-02-16 1,239,200 -532,600 22 0.0
2021-02-23 1,143,700 -487,700 22 -8.33
2020-02-19 937,837 -407,956 24 0.0
2019-02-26 858,289 -366,423 24 4.35
2018-02-28 790,248 -338,245 23
  • Average operating margins: 20.8 %
  • Average operating margins growth rate: -12.5 %
  • Coefficient of variability (lower numbers indicate more stability): 25.8 %

Since both Masimo's gross margins and operating margins tend to be positive, we know that its business is currently profitable. However, it's important to take into account their variability and overall growth trend to make a definitive conclusion regarding the company's strength.

To get a better idea of Masimo's finances, we will now look at its cash flows. Often touted as a general yardstick for a company's financial health, cash flows represent the sum of inflows and outflows of cash from all sources, including capital expenditures:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023-03-01 29,400 -56,300 85,700 -71.39
2022-02-16 264,600 -34,900 299,500 2.92
2021-02-23 211,100 -79,900 291,000 -1.07
2020-02-19 221,642 -72,492 294,134 14.6
2019-02-26 239,527 -17,126 256,653 149.6
2018-02-28 56,062 -46,763 102,825
  • Average free cash flow: $85.7 Million
  • Average free cash flow growth rate: 0.0 %
  • Coefficient of variability (lower numbers indicating more stability): 633536584.0%

Free cash flow represents the money that Masimo can use to either reinvest in the business or to reward its investors in the form of a dividend. Despite the company's recent cash flows being in the green, investors do not currently receive a dividend.

In conclusion, Masimo may be unattractive to investors with a low risk tolerance or a long term investment horizon. Stocks such as these may offer strong returns in the short term, but for now the long term potential of the company is not substantiated -- by the numbers, at least.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.