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Why the Compumedics Limited share price rocketed 43% higher

Much to the delight of its shareholders, the Compumedics Limited (ASX: CMP) share price has gone gangbusters today.

Compumedics is a medical device company involved in the development, manufacture, and commercialisation of diagnostics technology for the sleep, brain and ultrasonic blood-flow monitoring applications.

In early afternoon trade the company’s shares are up a whopping 43% to 53 cents.

What happened?

This morning the company announced that it had secured a major magnetoencephalography (MEG) brain imaging contract from the world-renowned Barrow Neurological Institute in the United States.

According to the release, the contracted system is expected to be worth around US$3.75 million (AU$4.9 million), with a discount for special collaborative arrangements.

In the near-term the two parties’ collaboration will include U.S. FDA applications and beta-site services such as biomarker test protocols.

In the longer-term the two parties will work together to improve and expand CPT/IDT (government health reimbursement) codes to help enhance brain healthcare.

Should you invest?

I believe Compumedics is an exciting healthcare company with significant growth potential. While its first-half results were a big disappointment, things have started to pick up now.

But although things do appear to be improving, I plan to err on the side of caution with this one and hold off an investment for the time being.

Sales into the U.S. fell sharply in the first-half, causing its share price to collapse to a 52-week low. If sales rebound in the second-half, asides from the new contract, then I may be inclined to take a closer look.

But in the meantime I would suggest investors consider other medical device companies like Nanosonics Ltd. (ASX: NAN) or ResMed Inc. (CHESS) (ASX: RMD).

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Nanosonics Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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