Tickers in this Article: NUVA, SYK, MDT, EW, MASI, VOLC, IART
All growth investors really want is a perfect record of unbroken, break-out growth. If companies do not deliver, the consequences are severe. NuVasive (Nasdaq:NUVA) had established itself over the past couple of years as one of the prime medical device growth stocks, at least in the orthopedics space, but now that record means very little and investors are facing a painful fall on Friday.

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The Quarter That Was
NuVasive reported 27% revenue growth in third quarter, delivering about $120 million in sales. Unfortunately, the company hosted a pretty upbeat analyst meeting a couple of weeks before the end of the quarter and it seems probable that the enthusiasm from that meeting had investors expecting more than bottom-of-the-range revenue performance.

Gross margin did slip a bit on an annual and sequential basis, but the company's reported operating income did jump 57% and the operating margin jumped by 150 basis points.

Unfortunately, the company's guidance was very problematic. Management took fourth quarter revenue guidance down by about 10% and to a level that suggests minimal sequential growth. More troubling still, it is starting to look like the company is going to be hard-pressed to meet the old level of growth expectations for 2011, and those analyst revisions could be pretty harsh. (For more, see 7-Hot Medical Device Ideas.)

The Road Ahead
Unfortunately for NuVasive, it looks like insurance companies are pushing back on the sorts of spinal surgeries that make up NuVasive's target market - and that what started as regional pilot programs are quickly growing into national changes in policies. Arguably just as serious, though, is the potential that competitors like Stryker (NYSE:SYK), Synthes, and Medtronic (NYSE:MDT) have closed the gap - although NuVasive may still have the best minimally invasive approach, competing technologies seem to be eroding that advantage. (For more, see A Checklist For Successful Medical Technology Investment.)

What could ultimately be more troubling, though, is a credibility gap. It would not be surprising if some analysts and institutional managers feel that company management was not completely straight with their market commentary during the analyst day, nor with the challenges the company was seeing in the market. It is admittedly a very "fuzzy" metric to try to evaluate, but there is no question that companies can find themselves in the penalty box for a while because of perceived missteps, and that this can impact valuation.

The Bottom Line
Although NuVasive was a popular stock, companies like Intuitive Surgical (Nasdaq:ISRG), Edwards Lifesciences (NYSE:EW), Masimo (Nasdaq:MASI), and Volcano (Nasdaq:VOLC) have done even better over the past few years, so growth investors may quickly move on to the next idea and leave NuVasive behind.

With that in mind, given Friday's drop in the share price, the company is starting to trade at appealing multiples for a double-digit grower. Integra LifeSciences (Nasdaq:IART), for instance, is also involved in spinal surgery and would have a similar multiple even though growth expectations are in the mid-single digits. NuVasive will have to re-prove itself to the Street and prove that it can maintain double-digit growth, but this could be the sort of "buy on the bad news" opportunity that investors are so often told to look for in the markets. (For related reading, check out St. Jude Sews Up A Lucrative Niche.)

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