Why the Somnomed Limited share price is going nuts today

Shares in medical device business Somnomed Limited (ASX: SOM) have climbed more than 5 per cent this afternoon after the group announced record-breaking unit sales for the month of September. For the full quarter ending September 30 2016 total revenues were $10.9 million, which is up 13 per cent above the prior corresponding quarter.

North America continues to be the key market for the company which is delivering strong growth partly on the back of new product launches that aim to make compliance even easier for patients being treated by continuous open airway therapy for various sleep disorders including snoring, sleep apnea and bruxism.

Despite the strong sales growth the company posted an operating cashflow loss of $1.6 million for the quarter and had $16.3 million in cash as at September 30. The market values the business highly given the growth rates and global potential for sales of its medical devices. The key to justifying the rich valuation will be turning an operating profit as this is likely to comfort investors that they are on to a good thing.

Risks exist as SomnoMed has some big-hitting competition in the sleep treatment space from the likes of ResMed Inc. (CHESS) (ASX: RMD) and Fisher & Paykel Healthcare Corp Ltd (ASX: FPH). Both of which could eat its lunch if they were to aggressively compete in its niche product space of mouthguard like medical devices.

Alternatively both would probably have the financial firepower to launch a takeover bid if they saw some value in buying SomnoMed and using their wide distribution networks to crank sales of its medical devices.

How 1 Man Turned $10K Into Over $8 Million

Discover how one man turned a modest $10,600 investment into an $8,016,867 fortune. Learn more about this man and how you can start down the path toward financial independence. Simply click here to learn more.

Motley Fool contributor Tom Richardson owns shares in ReMed Inc. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.