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Why MiMedx Group Inc. Is Sinking Today

By Brian Feroldi - Oct 23, 2017 at 4:39PM

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Shares tumble on little news -- are short-sellers behind the move?

What happened

Shares of MiMedx Group (MDXG 2.88%), a biopharmaceutical company focused on regenerative medicine, fell 10% as of 3:45 p.m. EDT on Monday. However, there doesn't appear to be any company-specific news that can help to explain the sell-off.

So what

MiMedx Group has been targeted by short-sellers over the last month, so today's volatility could simply be attributable to more activity on this front. That seems likely since the number of shares that have been sold short has jumped over the past two months:

Date Short interest
8/15/2017 22.0 million
8/31/2017 23.3 million
9/15/2017 25.6 million
9/29/2017 29.5 million

Data source: Nasdaq.

For what it is worth, MiMedx Group's management team has done its best to combat the attack by posting a series of responses on its investor relations page.

Chart with arrow trending downward, with a frustrated businessman in foreground

Image source: Getty Images.

Another tactic that management had used to reassure investors was to preannounce third-quarter results. The company stated that it expects third-quarter revenue to come in around $84.6 million, which is well ahead of its guidance range of $79 million to $80 million. That represents growth of 31% year over year, which is very strong. The company also stated that accounts-receivable days sales outstanding (DSO) -- a common calculation that is used to estimate a company's average collection period -- fell to the mid-60s.

If all of that wasn't enough, MiMedx's board of directors also recently authorized an additional $10 million in share repurchases.

Commenting on the repurchase activity, CEO Pete Petit said:

The recent deceptive and contrived attacks on our stock have caused the MiMedx shares to become very undervalued in my opinion. I believe it is a very prudent use of our capital to acquire our shares at this point, and our high growth profile in both revenues and profits should produce an extremely anti-dilutive result from our stock repurchases.

In spite of these aggressive responses, the high number of shares sold short is likely to keep the share price volatile for the foreseeable future.

Now what

Short-term price action aside, MiMedx's investors should do their best to remain heads-down and focus on the long-term potential of the business. A brief look back at MiMedx's growth over the last few years shows that the company has stumbled upon a winning business model:

MDXG revenue, net income, and share-price growth (past five years)

MDXG Revenue (Annual) data by YCharts.

MiMedx will officially announce its third-quarter earnings results on Friday at 10:30 a.m. EDT. Bulls and bears alike would be advised to listen in for clues about what's next for this business.

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