Please ensure Javascript is enabled for purposes of website accessibility

Why Tandem Diabetes Care Is Sinking Today

By Brian Feroldi - Sep 17, 2018 at 11:23AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares dropped by double digits on Monday. What's going on?

What happened

Shares of Tandem Diabetes Care (TNDM -4.24%) were down 16% as of 11:02 a.m. EDT on Monday. There wasn't a single press release, SEC filing, or analyst downgrade that could explain the move. Investors can likely chalk up the decline to normal volatility. 

So what

Tandem Diabetes Care has been one of the hottest stocks of 2018. Shares traded hands for less than $3 at the start of the year. They are now more than $40, even after accounting for today's drubbing. A move of that magnitude usually comes with increased volatility, which is what investors are experiencing today. 

Arrow pointing up and down with question mark

Image source: Getty Images.

Now what

Tandem's turnaround has been nothing short of miraculous. In 2017, the company reported a net loss of $73 million and held only $24 million in cash on its balance sheet at year end. Those numbers make it obvious why Wall Street didn't have high hopes for the business. Thankfully, the company was able to raise $69 million in February from a secondary common stock offering. While the dilution was horrendous, the cash injection probably saved the business from bankruptcy.  

Management is guiding for sales growth of at least 23% in 2018 and for its operating margin to land between negative 40% and negative 35%. That's an improvement over the prior year, but it suggests that this company still has a long way to go to get to profitability.

Overall, it's great to see that Tandem's finances are improving, but it's important to remember that this company still faces an intense amount of competition from both Medtronic and Insulet. For that reason, I'm content to take a pass on this red-hot growth stock and focus my time and attention on far more compelling healthcare companies

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tandem Diabetes Care Stock Quote
Tandem Diabetes Care
$71.54 (-4.24%) $-3.17
Medtronic plc Stock Quote
Medtronic plc
$103.57 (-2.53%) $-2.69
Insulet Corporation Stock Quote
Insulet Corporation
$190.03 (-5.00%) $-10.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.