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The following segment was excerpted from this fund letter.
Masimo (NASDAQ:MASI)
Masimo stock has traded down to extremely low levels. You can read our thesis on this health sensing technology business here. In their case, there has not been a deceleration in their growth rate nor is one expected.
The company has very solid, and in our view very durable, growth related to selling their existing products to hospitals. But the company also has a very large opportunity to expand the range of products they sell within the hospital as well as selling health sensing technology products that are used in the home.
In February, the company shocked investors (including us) by announcing that as part of their strategy to bring these additional products to market, they would be buying a home audio technology company called Sound United. In our view, the company’s communication to investors about the strategy related to the acquisition has fallen far short of what it should be. The company insists that explaining the strategy in more detail at this time would tip off competitors as they race to market, and they plan to provide an in-depth strategy update at an investor day in September.
Our own research since the deal was announced, as well as our conversations with management and other major shareholders of the company, has helped provide us with confidence that the company’s strategy, while unexpected, is likely to succeed. That being said, the company’s full explanation of their strategy won’t come until September and based on what we learn at that time, we remain completely open to changing our minds.
The reaction to Masimo’s acquisition helps illustrate the short-term thinking that currently permeates financial markets. While waiting two more months to hear from the company might be an unacceptably long time for investors who are not willing to think longer than a few days or weeks into the future, our investment in Masimo is based on our view of the tremendous positive impact the company can have over the next decade as they reduce the cost of health care and improve patient outcomes, while rewarding long-term oriented shareholders handsomely along the way.
But it would not be truthful to say that we are immune from short-term pressures. Holding stocks that other investors have dumped is challenging to say the least.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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