What happened

Shares of Novocure (NASDAQ:NVCR) are down 9.3% at 3:37 p.m. EST, after being down down as much as 11.5% earlier in the day, after an analyst at Evercore ISI downgraded the medical-device maker to "in line."

So what

Considering how much Novocure's stock price has increased lately, the downgrade shouldn't be too surprising. Shares of Novocure, which makes devices designed to slow the growth of tumors using electric fields, jumped more than 150% last year while its price-to-sales ratio more than doubled.

The company's valuation is certainly high, but Novocure has a lot of potential, with sales increasing 42% year over year in the third quarter. Much of the growth has come from increasing reimbursement for its device, but growth in Europe and Japan also helped boost revenue.

The company was able to turn a profit during the quarter -- its first ever. While it was only $0.02 per share, the profit shows how the company can improve margins as it ramps up sales. Gross margin, for example, increased to 75% from 71% in the year-ago quarter.

Sign reading "Downgrade next exit"

Image source: Getty Images.

Now what

To keep the momentum going, Novocure will need to expand beyond glioblastoma (brain cancer) where its device is currently approved. Interim data from Lunar, a late-stage clinical trial in patients with non-small-cell lung cancer, is scheduled to be released in the second half of this year. And next year, investors will get interim data for a late-stage clinical trial (Panova-3) in patients with pancreatic cancer, as well as data for a late-stage study (Metis) in patients with brain metastases.

With data at least six months away, shares could come under pressure if short-term traders move on to companies with more immediate binary events. Long-term healthcare investors willing to hold through the volatility can take those moves as an opportunity to invest at a discount.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.