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Why Cutera, Inc. Is Tumbling Today

By Brian Feroldi – Aug 8, 2018 at 11:23AM

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Shares are cratering after the company reported second-quarter results that missed the mark.

What happened

Shares of Cutera (CUTR -0.75%), a laser maker that services the aesthetics market, fell 16% as of 10:50 a.m. EDT on Wednesday. The selling pressure can be traced to second-quarter results and guidance that fell short of expectations.

So what

Here's a look at the key figures from Cutera's second quarter:

  • Revenue grew 17%, to $42.6 million. The increase was driven by a 16% sales jump in the states and 19% growth in international markets. 
  • Gross margin declined by 500 basis points, to 53%. Management blamed the downfall on lower average selling prices on its legacy products and increased sales to distributors. 
  • Non-GAAP net income was $1.8 million, or $0.12 per share. This figure was well shy of the $0.18 in earnings per share (EPS) that Wall Street was expecting. The miss is partially attributable to the company's lower-than-hoped-for gross margin.
Woman having a tattoo removed with a laser

Image source: Getty Images.

Management also took the opportunity to adjust its guidance for the full year. Here's what the updated expectations look like:

  • Revenue is expected to land between $178 million and $181 million. This represents year-over-year growth of 18% to 20%.
  • Gross margin is expected to land between 53% to 54%. This is a 400-basis-point reduction from its prior guidance. However, the company stated that it expects gross margin will improve as the year progresses.
  • Operating expenses are expected to land between 56% and 57% of total revenue. This is much high than the company's prior guidance range of 52% to 54% of total revenue. 
  • Non-GAAP earnings per share are expected to land between $0.50 and $0.60. This is a substantial pullback from its prior guidance range of $1.03 to $1.11.

Given Cutera's weaker-than-expected quarterly profitability and substantial reduction in its full-year EPS estimate, it isn't hard to figure out why its stock is selling off today. 

Now what

Cutera's quarterly results and guidance weren't pretty, but the company's near-term margin problem appears to be fixable. The company also sports a debt-free balance sheet and continues to launch new products that should resonate with the fast-growing aesthetic community.

Overall, I think that long-term bulls continue to have reason to remain optimistic. With shares currently trading at a substantial discount to their 52-week high, right now might be a good time for opportunistic investors to give this stock a closer look.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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