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Why Glaukos Corp. Is Sinking Today

By Brian Feroldi - Apr 13, 2018 at 12:45PM

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Shares tumble after a Wall Street analyst cuts his rating. Here's what investors need to know.

What happened

In response to receiving an analyst downgrade, shares Glaukos (GKOS 6.52%), a medical-device maker focused on eye diseases, fell 11% as of 11:55 a.m. EDT on Friday.

So what

Jonathan Block, an analyst at Stifel, downgraded Glaukos' stock from Buy to Hold today over competitive concerns. He also lowered his price target on the company's stock from $39 to $32.

The downgrade came in response to a recent survey that Block performed on a group of 71 doctors who focus on eye diseases. The survey results showed that 90% of doctors who currently use Glakos' iStent also plan to become trained on a rival microstent product called Hydrus that is currently in clinical development from a privately held company called Ivantis. Block believes that once Hydrus becomes available for sale in U.S., it will erode Glaukos' market share and inhibit the company's growth potential.

Three people looking at a laptop screen and acting concerned.

Image source: Getty Images.

Traders responded to the downgrade and upcoming competition by knocking around Glaukos' stock.

Now what

The last 12 months have been brutal for Glaukos' shareholders. The company's stock has fallen nearly 50% from its 2017 highs over fears of slowing growth and rising competitive threats. Management didn't do investors any favors last year either as it overpromised and underdelivered on its growth expectations, which is a big no-no for pricey growth stocks.

The story isn't getting any better, either. Management is predicting sales in 2018 to land between $160 million and $165 million, which represents just 2% growth year over year at the midpoint. That number won't get growth investors excited, especially with the competitive landscape starting to heat up.

On the bright side, market watchers expect Glaukos' revenue to return to double-digit growth in 2019, and the company's balance sheet is in great shape. That means it is possible today's drop could represent a buying opportunity if you are a patient investor.

I'm hopeful that Glaukos can return to growth in the face of the ramping competitive environment, but my enthusiasm for this stock has waned significantly in the face of its recent challenges. For that reason, I think healthcare investors would be better served by focusing their time and capital on higher quality businesses

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