The fickle nature of the stock market can send stocks plunging or soaring much more than is justified. That's because the psychology of investing includes the emotions of fear and greed, which can sometimes cloud the judgment of the market overall.
This arguably was demonstrated when shares of medical device maker AngioDynamics (ANGO 0.52%) plummeted 27% on the day of its fiscal third-quarter earnings release recently. Let's dig into three reasons this sell-off could have been massively overdone.
1. The top line is growing, and the bottom line will recover
With a $400 million market capitalization, AngioDynamics is one of the smaller publicly traded medical device companies. But while few retail investors are likely familiar with the stock, many healthcare professionals are well acquainted with the company's products.
AngioDynamics' product lineup includes NanoKnife, a minimally invasive treatment utilized in patients with inoperable or late-stage cancers. The company's portfolio also contains a blood clot therapy known as the AlphaVac System. Finally, AngioDynamics makes Auryon, a peripheral artery disease remedy.
Overall net sales surged 9.1% higher year over year to $80.7 million during its fiscal third quarter, which ended Feb. 28. The medical device segment's net sales grew 6.4% over the year-ago period to $57.8 million in the quarter. This is well above the 1% to 3% growth the company anticipates from the segment over the long haul. It's due more to the significant supply chain disruptions and tight labor market that AngioDynamics experienced in the prior year than to a meaningful change in the long-term prospects of the medical device segment.
The medtech segment (i.e., Auryon, AlphaVac, and NanoKnife) posted $22.9 million in net sales for the fiscal third quarter, a 16.6% year-over-year growth rate. Because the medtech segment is growing faster than the medical device segment, the former's share of net sales expanded to 28.3% during the quarter. And as the quickly growing segment becomes a greater part of AngioDynamics' sales mix, top-line growth should come in around a high-single-digit annual clip.
The company lowered its fiscal year 2023 net sales to a midpoint of $340 million from the previous midpoint of $345 million. This was likely part of why the stock was hammered upon the release of its earnings. And as a result of lower revenue and more inflationary headwinds than initially predicted, AngioDynamics' non-GAAP (adjusted) earnings-per-share (EPS) guidance swung from an old midpoint of $0.035 to a new midpoint of -$0.035.
This is disappointing news, for sure. But in such a challenging macro environment, it isn't entirely surprising. The good news is that analysts expect the company to swing to an adjusted EPS of $0.11 in fiscal year 2024 and a much greater adjusted EPS of $0.25 in fiscal year 2025.
Image source: Getty Images.
2. The financial resources to support a bright future
AngioDynamics plans on launching new indications to its NanoKnife System and planned thrombectomy and pulmonary embolism portfolio. This should help the company's total U.S. addressable market expand from just $3 billion in fiscal year 2021 to $8 billion by 2025.
Fortunately, the company has the balance sheet to make it happen. The company's net debt currently stands at just $19.7 million. Compared to the $22.3 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) that analysts are forecasting for the current fiscal year, this is a net debt-to-EBITDA ratio of 0.9.
3. An opportunistic valuation
AngioDynamics has been crushed by the market in recent months. The stock's trailing-12-month price-to-sales (P/S) ratio of 1.1 is well below its 10-year median of 1.7 and near its 10-year low of 1. Given that AngioDynamics still looks to have growth left in its future, this valuation represents a clear buying opportunity. That's why analysts have an average 12-month share price target of $20, double the current $10 share price.
