After A Massive 60% Rise Since March Lows, Has Masimo Stock Run Its Course?

by Trefis Team
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Masimo Corporation (NASDAQ:MASI), a medical devices company best known for its remote patient monitoring systems, has seen its stock grow by about 50% from $158 at the beginning of the year to $237 currently, outperforming the broader indices, due to the increased demand for its products in the wake of the current Covid-19 pandemic. That said, the stock has seen a strong run up, and it now appears to be richly valued, thus limiting any significant upside. A detailed comparison of Masimo’s performance vis-à-vis the S&P 500, and its stock price performance compared to the 2008 crisis is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Masimo Stock Fare Compared With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. Masimo stock lost 19% of its value (vs. about a 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government, as well as the demand for the patient monitoring systems in the current crisis, has helped the stock price see sharp growth of 60% over recent weeks (vs. 30% gain in the S&P 500) to its current level of $237.

Masimo Stock Rallied Led By Higher Demand For Its Products

Masimo’s stock has rallied this year largely due to optimism surrounding its monitoring systems. While the company has seen higher demand for its products over the recent months, the demand could slow after the Covid-19 crisis winds down.

While we expect the demand to remain high in the near term, we believe Masimo’s Q3 results will confirm this reality with a drop in its sales growth vis-a-vis its Q2 sales growth. If signs of coronavirus containment aren’t clear by the Q2 earnings timeframe, it’s likely Masimo stock is going to see a continued growth.

Masimo Outperformed Through The 2008 Downturn

Masimo’s stock outperformed the broader markets through the recession of 2008-2009. Between the pre-crisis market peak of October 2007 and the approximate market bottom in March 2009, the stock was down a mere 4%, compared to the broader S&P which was down by about 51% over the same period. Masimo’s stock peaked in 2008, and from there it fell 35% in March 2009, still outperforming the broader markets. This was likely due to the fact that the company continued to grow its revenues through the downturn, led by expansion of its installed base for pulse oximeters.

Why Masimo Stock Looks To Have Run Its Course?

Keeping in mind the fact that Masimo stock fell 19% from the market peak on February 19 to the low on March 23 compared to the 35% decline during the 2008 recession, we believe it may have run its course and appears to be overbought at these levels. While it is difficult to compare Masimo in the current environment vs the 2008 downturn, given that the current crisis is health related and Masimo is an important player supplying the patient monitoring systems to various health care institutions, it surely appears to be richly valued at the current levels, and any significant upside from these levels is unlikely, in our view.

It is not just about the growth in recent months, Masimo’s stock is up 200% since 2017. This move is largely driven by P/E Multiple expansion from 35.0x to 67.0x, reflecting a strong 91% growth. The multiple is much higher when compared to its historical levels, and these levels could potentially cause investors to re-examine the company’s valuation.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting U.S. COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. The complete set of coronavirus impact and timing analyses is available here.

Also see, Why Is Hasbro’s Stock Up 20% While Its Sales Are Down 10%?

See all Trefis Price Estimates and Download Trefis Data here

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