Why ABIOMED Shares Imploded

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 ABIOMED (Nasdaq: ABMD  ) , a maker of heart support devices, are being absolutely crushed, falling as much as 33% earlier in the trading session, after reporting its second-quarter earnings results.

So what: Surprisingly, ABIOMED's plunge has very little to do with the actual earnings figures themselves -- which came in higher than Wall Street's estimates on an EPS basis -- and almost everything to do with a statement buried beneath its earnings results. In its filing, ABIOMED notes that on Oct. 26, it was informed by the U.S. Attorney's Office for the District of Columbia that it was investigating the company's marketing and labeling practices surrounding its lead revenue-generating device, the Impella 2.5, which pulls blood from the left ventricle of the heart through a catheter, and sends it into the ascending aorta. ABIOMED has pledged to cooperate fully with the investigation.

Now what: The real concern here is that its Impella devices are its primary growth driver. ABIOMED's annual revenue forecast calls for growth of 23%-24%, of which Impella sales are forecast to grow in excess of 30%. If ABIOMED is somehow found guilty of violating marketing or labeling practices, that could cripple its growth prospects. As usual, ABIOMED is innocent until proven guilty but, even after today's tumble, it's still trading at a frothy 32 times forward earnings. This is a case of neat technology, but little substance to the bottom line thus far.

Craving more input? Start by adding ABIOMED 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.

Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2090251, ~/Articles/ArticleHandler.aspx, 10/1/2014 10:33:55 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement