Shares of Tandem Diabetes Care (TNDM -5.50%) closed down 9.9% on Wednesday after sinking as much as 11.9% earlier in the day. There wasn't any negative news specific to the insulin pump maker. However, healthcare stocks overall took a beating on Wednesday amid increasing concerns about the political climate in Washington D.C., particularly with the Medicare for All plan proposed by presidential candidate Sen. Bernie Sanders (I-VT).
At this point, the sell-off for Tandem appears to be overdone. There's a long way to go before Medicare for All has any kind of chance of becoming U.S. law.
Even though some surveys indicate public support for Sen. Sanders' overhauling of the U.S. healthcare system, that support falls off dramatically when respondents learn more about the details of the plan. For example, a Kaiser Family Foundation (KFF) survey conducted earlier this year found that 56% of Americans supported the Medicare for All plan. But when told that such a system could lead to higher taxes, support fell to 37%. And when told that the government-run approach could lead to delays in getting care, only 26% of Americans supported Medicare for All.
It's also uncertain how Tandem Diabetes Care would be impacted by the healthcare changes being floated around in Washington. Insulin pumps, such as those marketed by Tandem, are must-haves for many diabetic patients.
Investors should also keep today's decline in perspective. Tandem stock soared 51% higher in February and is still up 46% year to date despite the recent pullback.
The best thing for investors to do now is to focus on Tandem Diabetes Care's business prospects and not worry too much about politics. The good news is that those prospects continue to look very bright.
However, Tandem's valuation is steep, with shares trading at more than 17 times sales. Because of the company's premium price tag, any holes in the road for healthcare stocks overall could translate to craters in the road for Tandem Diabetes Care.