Why Cepheid Stock Nosedived

Molecular diagnostic company Cepheid may need to do some internal analyzing after its full-year outlook failed to excite investors.

Jul 18, 2014 at 1:15PM

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 Cepheid (NASDAQ:CPHD), a developer of molecular diagnostic tests for both clinical and non-clinical markets, plunged as much as 11% after the company reported its second-quarter earnings results following the closing bell last night.

So what: For the quarter, Cepheid reported revenue of $116.5 million, a 21% boost from the $96 million it recorded in the year-ago quarter. Cepheid's net loss still widened by 40% to $0.14, however, on an adjusted basis, it delivered $2.3 million in net income, or $0.03 per share. Comparatively, Wall Street was expecting just a $0.02 EPS profit on $115.5 million in sales, so this was a modest beat. Cepheid's CEO John Bishop also pointed out that the company placed 1,084 GeneXpert systems in the past quarter, which was more than Cepheid placed in the entirety of 2012.

Where the wheels fell off the wagon was with the company's full-year outlook. Cepheid announced a full-year revenue forecast of $452 million to $461 million and an adjusted EPS projection of $0.10-$0.13. Wall Street, on the other hand, was expecting $459.8 million in revenue (so this was more or less in-line) and $0.20 in EPS (a sizable miss).

Now what: With the increasing push toward treatment personalization through diagnostics, as well as the Affordable Care Act dropping the rate of uninsured by mandating that citizens purchase insurance or face a penalty, there's a decent chance that molecular diagnostic test developers like Cepheid are going to see demand for their products rise steadily over the long run as preventative care visits increase. But, as of right now it's incredibly tough to look past Cepheid's marginal profitability. Even stretching Wall Street's projections out to 2017 still leads to a forward P/E well in excess of 100! Unless Cepheid can find a way to rapidly grow its top line or boost its profitability, I would suggest leaving this stock to the traders.

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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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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

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