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Why AngioDynamics' Shares Flopped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of vascular-focused medical device company AngioDynamics (Nasdaq: ANGO  ) tumbled as much as 16% after reporting first-quarter earnings results and announcing an acquisition.

So what: For the quarter, AngioDynamics reported robust sales growth of 53% to $83.4 million, but were aided primarily by its Navilyst Medical acquisition. Excluding this transaction, total net sales decreased by 1%, with U.S. net sales falling 4%. The company also reported an adjusted profit of $0.10 per share, which was slightly higher than the $0.08 it reported in the year-ago period.

The bigger news was AngioDynamics' $15 million purchase of Vortex Medical, a privately held medical device company focused on the removal of blood clots from occluded blood vessels. The deal itself is only going to add $1 million in income in 2013, but is going to reduce $5 million, or $0.09 in EPS, from operating income.

Now what: If you're curious why AngioDynamics is faltering today, it's a mixture of a bunch of factors. For one, looking beyond its revenue growth, there's no organic growth. Acquisitions seem to be the only factor pushing AngioDynamics forward, but there's really no substance to be had in its results.

Second, I can't recall the last time a medical device company made a purchase that caused its earnings forecast to be reduced by such a sizable amount. Either AngioDynamics brutally overpaid for the company, or perhaps it sees something that I don't. In either case, the midpoint of AngioDynamics' 2013 EPS guidance ($0.41) is well below Wall Street's consensus ($0.50), and at roughly 27 times forward earnings, I see little reason to be buying based on today's weakness.

Craving more input? Start by adding AngioDynamics to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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10/28/2016 1:59 PM
ANGO $15.56 Down -0.28 -1.77%
AngioDynamics CAPS Rating: ***