Omnicell Popped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of automated medications dispenser Omnicell (NAS: OMCL) leapt 13% in Friday trading.

So what: The jump follows blowout Q2 earnings that arrived yesterday evening. Omnicell expanded its revenue stream 11.5% in the year's second quarter, and earned $0.08 per share thereon -- a full third better than it had managed in last year's Q2.

Now what: Can numbers like these even justify the stock's sky-high 122 P/E ratio? I'd love to give you the answer -- but I just don't know for sure. Last year, Omnicell generated free cash flow far in excess of its reported $4.9 million GAAP "net income." The company seems to have forgotten to include a cash flow statement in its earnings release yesterday, however, so it's hard to say if it will repeat the feat this year.

My advice: Beware the P/E ratio, but be prepared to act if it turns out to be overstating the stock's expensiveness. Omnicell will have to file a 10-Q form with the SEC sooner or later. On that document you will see how well the company's actually generating cash profits to back up its reported "accounting earnings." If the number's as good as what we saw last year, the stock just might be worth buying.

Want more info on Omnicell and its performance?Add the stock to your Fool Watchlist

At the time this article was published Fool contributorRich Smithdoes not own (or short) shares of Omnicell. The Motley Fool has adisclosure policy. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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