What happened

Shares of CareDx (NASDAQ:CDNA), a diagnostics company geared toward transplant recipients, are falling in response to forward-looking revenue projections that suggest a slowdown ahead. Despite the company issuing an otherwise positive third-quarter report, the stock has tumbled 12.2% as of 1:16 p.m. EDT on Friday.

So what 

When CareDx reported second-quarter earnings three months ago, it predicted total revenue would climb to a range between $123 million and $125 million. When reporting third-quarter results, management tightened that range to between $124 million and $125 million but didn't raise expectations at all.

Tired person holding a downward sloping arrow

Image source: Getty Images.

Third-quarter revenue grew 60% year-over-year to $34 million, and 72% year-over-year to $91 million during the first nine months of 2019. Unfortunately, the company's full-year revenue projection suggests revenue won't rise at all between the third and fourth quarters this year.

Now what

During the earnings call, CareDx management explained the fourth quarter is generally softer than the rest of the year because patients don't like visiting transplant centers during the holidays, and the explanation holds water. In the fourth quarter of 2018, the company reported 23 fewer heart transplant tests under the AlloMap brand than during the previous three-month period. 

AlloMap's been a Medicare-covered service since 2006, but AlloSure crossed this line about two years ago. Pent-up demand for a kidney transplant test that uses cell-free DNA from a simple blood draw was still unwinding late last year, which led to a quarter-over-quarter increase of 867 tests. The company doesn't necessarily expect AlloSure to begin experiencing seasonal dips in the fourth quarter, but it's better to underpromise than underdeliver.

Today's losses have lowered CareDx's market cap to $985 million, or around 9.2 times trailing sales. Perhaps the company won't be able to produce 80% year-over-year growth in the quarters ahead, but at its recently depressed price, this healthcare stock doesn't need to report eye-popping growth for investors to realize a market-beating return.

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