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Why Globus Medical Is Getting Hammered 15% Today

By Todd Campbell – Jul 27, 2016 at 3:56PM

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Second-quarter financial results failed to impress investors.

Image source: Getty Images.

What: After reporting single digit top-line revenue growth in the second quarter that was shy of industry watchers' forecast, shares in Globus Medical (GMED 1.27%) tumbled by 15% as of 3:30 p.m. Wednesday.

So What: In the earnings report it released Tuesday after the close, the maker of musculoskeletal spinal implants to promote healing said that sales grew 2.9% year over year to $137.5 million in the second quarter, leading to EPS of $0.29.

Revenue grew roughly in line with the broader spine care market, and earnings growth of 10.6% increased more quickly than revenue growth thanks to rising volume being leveraged against fixed costs. Cost of goods sold dipped to 23.9% in the quarter from 24.4% a year ago. Selling, general, and administrative expenses improved to 38.1% of sales from 40.8% last year.

Globus earns the vast majority of its revenue in the U.S., but sales internationally grew more quickly than they did domestically. International sales improved 5.7% to $12.8 million in the quarter compared to a year ago.

Now What: The company's plans include further increases in its sales team to help drive growth. Management updated guidance for this year to $575 million in sales and non-GAAP EPS of $1.20. Heading into Wednesday, industry watchers were hoping for revenue of $583 million this year. Globus also offered its first forecast for 2017. Management is targeting full year sales of $640 million, including $40 million from acquisitions.

Globus has a solid balance sheet with no debt, and plenty of cash on the books, but with a forward P/E of 18.8, its stock isn't a bargain, especially given the company's low-single-digit growth. Overall, there are probably other investment ideas that are more compelling for investors to consider buying.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this. The Motley Fool has no position in any of the stocks mentioned. We Fools may not 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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