Is Merit Medical Systems (MMSI) a Buy or Sell Based on Short Interest and Analyst Sentiment?

Merit Medical Systems (MMSI) has emerged as a focal point for investors navigating the intersection of robust financial performance and divergent market sentiment. While the company's Q3 2025 results-marked-by a 13% year-over-year revenue increase to $384.2 million and an earnings per share (EPS) of $0.92, surpassing forecasts by 10.84%-underscore operational strength, recent data on short interest, analyst activity, and valuation models reveal a nuanced picture of market dynamics. This analysis evaluates whether MMSI presents a compelling opportunity for strategic entry or cautionary signals for near-term investors.

Rising Short Interest and Bearish Sentiment

Short interest in MMSI has surged, reflecting growing bearish sentiment despite the company's strong earnings. As of June 30, 2025, short interest stood at 3,590,000 shares, representing 6.28% of the float. This figure increased by 9.8% from Q2 2025's 3,270,000 shares, with further data indicating a 10.66% rise in short interest as a percentage of float to 7.68% of available shares. Such a jump suggests that short sellers are positioning for potential downside, often capitalizing on volatility or perceived misalignment between fundamentals and stock price.

However, this bearishness contrasts sharply with MMSI's Q3 performance. The company not only exceeded revenue and EPS expectations but also raised its full-year guidance for revenue growth to 11-12% and non-GAAP EPS to $3.66–$3.79. This divergence between short-term bearish bets and long-term operational momentum raises questions about whether the stock is being unfairly discounted or if market participants are pricing in macroeconomic risks.

Analyst Upgrades and Valuation Divergence

Analyst sentiment for MMSI in late 2025 has been mixed but largely constructive. While Wells Fargo and Canaccord Genuity Group reduced price targets (from $103 to $95 and $104 to $93, respectively), Piper Sandler and Barrington Research upgraded their targets to $109 and $106, maintaining "overweight" or "outperform" ratings. The consensus "Buy" rating, with an average price target of $105.88, suggests confidence in the company's long-term trajectory despite near-term volatility.

Valuation models further highlight divergence. Discounted cash flow (DCF) analyses yield a wide range of intrinsic values: a $68.49 intrinsic value (Alpha Spread), a $77.64 intrinsic value (Yahoo Finance), and a $104.46 intrinsic value (ValueInvesting.io). At a current price of approximately $86.70, MMSI appears overvalued by 21% per Alpha Spread's model but undervalued by 20.5% per ValueInvesting.io's estimate. This discrepancy underscores sensitivity to assumptions about growth rates and discount factors, with bullish analysts likely factoring in MMSI's projected free cash flow (FCF) growth-expected to reach $229 million by 2027 and $295 million by 2035 according to financial analysis.

Institutional Ownership and Insider Activity

Institutional ownership of MMSI remains substantial, with 99.66% of shares held by institutions. However, Q2 2025 saw Invesco Ltd. reduce its stake by 11.5%, selling 205,276 shares, while CWM LLC and Victory Capital Management increased holdings by 134.5% and 38.5%, respectively. This mixed activity reflects divergent views on valuation and risk.

Insider sales also warrant attention. Executive Chairman Fred P. Lampropoulos sold 25,000 shares in November 2025, reducing his ownership by 2.37%. While insider selling is not inherently bearish, it may signal caution about near-term execution risks or personal financial planning.

Strategic Entry Points and Risk Considerations

The interplay of rising short interest and analyst optimism creates a compelling case for strategic entry. Short sellers often drive price declines, but MMSI's fundamentals-bolstered by a 53.6% gross margin and $53 million in free cash flow (up 38% YoY)-suggest resilience. If short-covering rallies materialize, the stock could see near-term gains, particularly if earnings momentum continues.

However, risks persist. The DCF valuation spread highlights uncertainty about MMSI's intrinsic value, and insider sales may amplify volatility. Additionally, the stock's 18% underperformance against the market over the past year indicates lingering skepticism about its valuation. Investors should monitor Q4 13F filings for institutional positioning updates and assess whether analyst upgrades align with tangible operational progress.

Conclusion

Merit Medical Systems presents a complex investment thesis. While rising short interest and insider sales signal caution, the company's strong earnings, analyst upgrades, and divergent DCF valuations suggest a stock poised for re-rating. For investors with a medium-term horizon, MMSI offers an opportunity to capitalize on valuation discrepancies and potential short-covering rallies, provided they remain mindful of macroeconomic headwinds and institutional sentiment shifts.