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Steven Chen
Steven Chen
Articles (206)  | Author's Website |

Urbem's 'Wonderful Business' Series: Masimo

Doing well by doing good

April 01, 2020 | About:

California-based Masimo (NASDAQ:MASI) is a leading medical technology company focused on the non-invasive patient monitoring niche. The mid-cap company is widely recognized for being one of the most innovative companies in the medical device industry and is most well-known for the signal extraction technology (referred to as “SET”) that it invented. With Masimo SET, hospitals can significantly reduce false alarms by as much as 95%, thereby improving healthcare outcomes and cutting wastes in operational costs.

Masimo was founded by Joe Kiani, an American entrepreneur immigrated from Iran, who currently still holds the positions of Chairman and CEO of the company with an over 7% equity stake. The company has its roots in the pulse oximetry domain, but has expanded its product offerings considerably to cover other settings, such as non-invasive blood constituent, brain and breath monitoring, brain function electroencephalogram monitoring, respiration rate, capnography and anesthetic agent monitoring.

Masimo is a truly global player, with over 100 million patients across more than 150 countries being monitored by its technologies each year. As of fiscal 2019, the domestic market accounted for 68% of the total product revenue (excluding royalties, which represented 0.2% of the total), followed by EMEA (19.6%) and Asia and Australia (9.4%).

Masimo owns a nearly 50% share of new shipments in the pulse oximetry market, with a leading position in the duopoly alongside medical device conglomerate Medtronic (NYSE:MDT). According to the company, the performance of Masimo SET pulse oximetry is proven by more than 100 independent and objective studies and thousands of clinical evaluations. It would be quite a challenge for smaller players or new entrants to steal the market share from Masimo, whose technologies are being trusted by clinicians and widely used by eight of the top 10 hospitals in the US. Furthermore, thanks to the superior technologies, Masimo has been able to employ an asset-light OEM approach to drive the majority of its business growth.

This is why we see a consistently outperforming return on capital achieved by the company over the past decade or so.

At the same time, the growth at Masimo has been phenomenal. For instance, the revenue and operating income increased nine-fold and 20-fold, respectively, over the past 15 years. The business managed to expand throughout the Global Financial Crisis, as indicated below.

Moving forward, we think that to fuel secular growths, Masimo is well-positioned to fire on multiple cylinders with regional expansion, extending product lines and taking advantage of the demographic tailwind. The management seems to have a clear, logical, organic growth strategy for the long run, as below:

“Continue to Expand Our Market Share in Pulse Oximetry.

Expand the Pulse Oximetry Market to Other Patient Care Settings.

Expand the Use of rainbow® Technology in the Hospital Setting.

Expand the Use of rainbow® Technology in the Non-Hospital Setting.

Utilize Our Customer Base and OEM Relationships to Market Our Masimo rainbow SET® Products Incorporating Licensed rainbow® Technology.

Continue to Innovate and Maintain Our Technology Leadership Position.”

As a MedTech innovator with a profound impact on saving lives and money, well-moated Masimo is a truly great business doing well for its shareholders by doing good, in our view.

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We do not own any security mentioned in the article.

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About the author:

Steven Chen
Steven CHEN is a quality-focused, business-perspective investor (with bottom-up opportunistic approaches), an ex-hedge fund analyst on Wall Street, a serial entrepreneur, computer scientist, and free-market capitalist.

Steven is the Managing Partner of Urbem Partnership, a value/quality-focused investment partnership fund (www.urbem.capital).

Steven can be reached at [email protected], LinkedIn, or WeChat (ID: LSCHEN2005).

Also, check out his column at Smartkarma on the Asian market - www.smartkarma.com/profiles/steven-chen

Visit Steven Chen's Website


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