Advanced heart failure is never a laughing matter, but investors in Thoratec (Nasdaq: THOR) had something to smile about after the therapeutic device maker reported second-quarter results late Wednesday. Although the company recently dropped its takeover bid for HeartWare International (Nasdaq: HTWR) in the face of a challenge from the FTC, strength in Thoratec's cardiovascular division drove solid revenue growth, and the company's shares responded by soaring 13% Thursday.

Heart pump sales helped increase overall revenue by 11% to $92 million. On a GAAP basis, though, earnings fell to $0.03 per diluted share, a 76% drop from the same quarter last year. That plunge largely owed to one-time costs of $7.4 million related to the cancelled HeartWare deal.

The heart of the matter
Given that mixed picture, why did the market so enthusiastically bid up Thoratec shares? Even looking at its non-GAAP results, which took the failed merger costs and other items, earnings per share still came in a penny below consensus estimates.

But the success of its cardiovascular division left investors hopeful for the future. The company raised guidance on full-year earnings and sales. So far, its HeartMate II devices have only been approved for use by potential heart-transplant patients, but that situation could be changing. By early 2010, management expects FDA approval to use the products for destination therapy patients, which would expand market share even further.

Sharks in the water
However, competition is fierce in the health-care industry, and heart-device makers are no exception. Numerous small companies such as Abiomed (Nasdaq: ABMD), as well as various divisions of big fish like Medtronic (NYSE: MDT) and Abbott Labs (NYSE: ABT), compete for Thoratec's sales.

There's also headline risk associated with the industry. A lot of investors are concerned with the new administration's rhetoric about hasty health insurance reform. If new regulation makes it more difficult for medical providers to get reimbursed by health insurers for expenses related to medical devices, Thoratec may see its current favorable sales trends begin to reverse.

Time to buy?
After the big run-up in Thoratec shares, I'm even more hesitant to recommend investing in the company than I was just a couple of weeks ago. I think Fools would be more prudent to wait for its price multiples to come down. Thoratec's valuation looks steep, especially in comparison to where Medtronic and Abbott currently trade. At almost 60 times trailing earnings, Thoratec's shares aren't encouraging me to rush out and buy now.