What happened
Shares of Inogen (INGN -4.79%) dropped more than 28% today, after the medical technology company announced fourth-quarter and full-year 2018 operating results. The company, which specializes in manufacturing oxygen generators, delivered 43.6% revenue growth for the year compared with 2017. Net income jumped 147% in that span.
While those results are pretty great, Wall Street analysts took issue over the company's full-year 2019 guidance for net income. Inogen sharply lowered its expectations for net income compared with its initial guidance. Given that shares were trading at a healthy premium relative to earnings, the stock price is responding to that lower guidance.
As of 3:58 p.m. EST, the stock had settled to a 24% loss.
Image source: Getty Images.
So what
The overall numbers suggest Inogen is heading in the right direction. The business generated $37.9 million in operating income in 2018, compared with just $27.6 million in the previous year. That resulted in a slight decrease in operating margin, from 11% to 10.6%, but the greater scale of the business and shifting product mix explains the difference. The business expects operating income in the neighborhood of $48 million in 2019.
Check out the latest Inogen earnings call transcript.
Wall Street is more concerned about management's expectations for net income. While net income grew from just $21 million in 2017 to nearly $52 million in 2018, the difference was largely explained by tax expenses. The business had to pay $8.6 million in taxes in 2017 but enjoyed an $11 million benefit last year.
Those benefits will disappear in 2019, which helps to partially explain the disappointing guidance for the year ahead. Management now expects net income of just $40 million and $44 million, down from the original range of $48 million to $52 million. That would work out to earnings per share of roughly $1.95 at the midpoint, which is far lower than the average Wall Street estimate of $2.17 per share, according to Yahoo! Finance.
Now what
Considering Inogen shares are trading at 57 times trailing earnings after today's drop, it's easy to see why Mr. Market is adjusting the share price lower on the new, lower guidance. However, investors with a long-term mindset should be encouraged that management expects strong revenue and operating income growth in the year ahead. That may not make shares any less expensive, but it provides confidence the business is growing at a healthy and profitable clip nonetheless.
