Natus Medical: The New Baby Boom

The baby business is booming for Natus Medical (BABY), which makes health care products "used for the screening, detection, treatment, monitoring and tracking of common medical ailments such as hearing impairment, neurological dysfunction, epilepsy, sleep disorders, and newborn care."

That the company is relatively small hasn't kept it from profiting handsomely from serving the parents of infants, and investors are catching on. This week BABY ranks 99th on the Investor's Business Daily Top 100 list of fundamentally strong momentum stocks. On Friday, it closed at $20.92, which is near the top of its 52-week range of $13.87 to $21.80. And no wonder traders are going for BABY. On May 1, it reported its first quarter earnings soared 73% to $2.6 million, or 11 cents per diluted share on a 36% jump in revenues to $36.9 million. The weighted average of shares outstanding was 22,977,000, up a bit from 22,734,000 a year earlier. Note the relatively high 11% short interest on the stock. That means there are doubters out there, and it means the stock's recent strength probably has been caused in part by short covering.

Like a lot of momentum stocks, BABY's already pretty expensive as these key statistics show. The forward PE is 24, the trailing 12 months PE is 44, the not too reliable PEG ratio is a cheap 1.12 and, the price sales ratio is 3.52, according to data on Yahoo.com. The price per share to cash flow is a very high 43.7, according to Morningstar.com, which doesn't rank the stock. IBD (investors.com) gives the stock a very high composite rating of 95, which is based on the company's earnings per share growth rate, profitability, sales growth and buying by institutions. BABY's point and figure chart shows a bullish price objective of $30.50. Thus, BABY is making the most of the baby boom, much as Pediatrix (PDX) is, even if that baby boom may be slowing.

Full disclosure: I do not have positions in any of the stocks mentioned here.