Kensey Nash Losing the Benefit of the Doubt

Med-tech is sometimes a strange little corner of the larger investing world. Investors will happily throw money at companies that lose it hand-over-fist, but they'll also rush to sell stocks when companies come up short on actual earnings. It's often all about "the story," and the story at Kensey Nash (Nasdaq: KNSY  ) seems to be one of increasingly less patience for a growth story that has yet to materialize.

Fiscal fourth-quarter results were fine, but guidance was anything but. Total revenue rose about 13% this quarter, while operating earnings fell 26% and 14% on an adjusted basis. Unfortunately for shareholders, guidance for the next quarter was more than 10% short on the top line and about half of the current guesstimate on the EPS line.

Part of the problem at Kensey Nash is that bulls have long maintained that meaningfully better growth is just around the corner. Perhaps that could yet prove to be true with the company's endovascular products (clinical results for the TriActiv FX were impressive), but I'm sure a lot of people have grown tired of waiting. And let's face it -- often the only thing that stands between a high valuation and a low valuation is investor confidence in the unknown and unproven.

Kensey Nash certainly isn't alone or unique in its issues. Med-tech companies ranging from Aspect Medical (Nasdaq: ASPM  ) to Boston Scientific (NYSE: BSX  ) (before the acquisition of Guidant) have had to weather the ups and downs that come with having essentially only one major growth driver in hand. But the question still remains whether investors can afford to wait for the company to deliver upon its promises in the face of uninspiring guidance.

Kensey Nash is a good example of why I don't really miss covering this sector on a day-to-day basis. On one hand, you have the very real potential of the TriActiv device, while on the other hand you have the equally real issue of lower guidance and inconsistent growth with customers like Orthovita (Nasdaq: VITA  ) , St. Jude (NYSE: STJ  ) , Zimmer (NYSE: ZMH  ) , and Medtronic (NYSE: MDT  ) . For my money, I think diligent Fools can find better values in the med-tech space if they're willing to roll up their sleeves for some due diligence.

For more med-tech missives:

Aspect Medical is a recommendation ofMotley Fool Rule Breakers, the newsletter service that tracks companies shaking things up. If you'd like to see what other innovators David Gardner has recommended, try out Rule Breakers free for 30 days.

Fool contributorStephen Simpsonhas no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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