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Why LeMaitre Vascular Inc. Is Plunging Today

By Brian Feroldi - Oct 27, 2017 at 2:01PM

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Traders flee after the company reports lower-than-expected quarterly revenue and shares disappointing guidance. Does this drop represent a buying opportunity?

What happened

After the company reported third-quarter earnings, shares of LeMaitre Vascular (LMAT 1.87%), a medical device maker focused on vascular surgery, fell 18% as of 11:35 a.m. EDT on Friday.

So what

Here's an overview of the headline numbers from the quarter:

  • Revenue grew 7% to $24.8 million. However, on an organic basis, sales declined by 2%. Both of these figures came in below management's guidance.
  • Gross margin dropped by 250 basis points to 70.8% as a result of product and geographic mix.
  • U.S. sales grew 6% while international sales increased 8%. 
  • Operating income fell 5% to $5.1 million.
  • Net income soared 56% to $5 million, or $0.25 per share, handily surpassing Wall Street's estimate of $0.20. However, the beat was largely driven by a huge reduction in income tax expenses.
  • Cash balance at quarter-end was $37.5 million.

Turning to guidance, here's what management is projecting:

  • Fourth-quarter revenue of between $25.8 million and $26.6 million. The midpoint of this range is below Wall Street's expectations of $26.6 million.
  • Fourth-quarter EPS between $0.19 and $0.21, which fits nicely around analyst expectations of $0.20. 
  • Full-year 2017 sales guidance range reduced to $100.6 million to $101.4 million. That's down from management's prior call for $101.9 million in total revenue. 
  • Full-year 2017 EPS guidance raised to $0.84, a 53% year-over-year increase. 

The lower-than-hoped for quarterly revenue result and guidance has put traders in a foul mood.

coins falling through a business man's hands

Image source: Getty Images.

Now what

LeMaitre's stock had gained more than 50% since the start of the year prior to today's plunge. That's a heck of a bull move in a short period of time, so I'm not completely surprised by today's market's reaction.

However, on the company's conference call with investors, CEO George LeMaitre stated that the year-ago quarter was a difficult comparison because one of its competitors' products was on backorder. What's more, the hurricanes in Texas and Florida reduced sales by $250,000. If you are willing to adjust for those one-time items, then the company's performance wasn't as bad as it appears.

Zooming out to the big picture, LeMaitre continues to operate in a profitable market niche and is executing reasonably well against its long-term plan. While shares are still quite expensive, today's drop represents a nice entry point for growth-focused investors.

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Stocks Mentioned

LeMaitre Vascular, Inc. Stock Quote
LeMaitre Vascular, Inc.
LMAT
$46.40 (1.87%) $0.85

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