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Forget the Selloff: Guardant Health Just Delivered Great Q4 Results

By Keith Speights - Feb 25, 2020 at 6:05AM

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The liquid biopsy pioneer delivered better-than-expected top- and bottom-line results in Q4. And its future looks as bright as ever.

Sure, Guardant Health (GH -0.52%) stock fell on Monday in the midst of the overall market plunge. And yes, its shares dropped even more in after-hours trading following the company's announcement of its 2019 fourth-quarter and full-year results.

But my recommendation is to forget the sell-off of Guardant Health. The liquid biopsy leader just delivered what I view as a great Q4 update.

Test tubes with a small drop of blood

Image source: Getty Images.

By the numbers

Guardant Health reported fourth-quarter revenue of $62.9 million. This result reflected a 91% jump from revenue in the prior-year period. It also blew past the consensus Wall Street Q4 revenue estimate of $54.8 million.

The company announced a gross profit of $41.1 million in the fourth quarter. This represented a $4.1 million increase from the prior-year period. Gross margin came in at 65.3%, up from 57.5% in the same quarter of 2018.

Guardant Health posted a net loss of $25.2 million, or $0.27 per share, in Q4. In the prior-year period, the company's net loss was $0.30 per share. In addition to this year-over-year improvement, Guardant Health's Q4 net loss also topped the average analysts' estimate of a net loss of $0.32.

Behind the numbers

A change to a new accounting standard helped Guardant Health a little in the fourth quarter. The company stated that its Q4 revenue would have increased 87% year over year to $61.1 million without the adoption of the new ASC 606 revenue recognition standard.

But there's no denying that Guardant Health had a strong performance in the fourth quarter. Higher testing volume for its Guardant360 and GuardantOmni liquid biopsy products fueled a 104% year-over-year jump in precision oncology sales. The company reported 15,270 clinical tests for Guardant360 and 6,316 biopharmaceutical tests for GuardantOmni were performed during Q4.

In addition, Guardant Health received $1.3 million in payments in Q4 from its successful efforts to appeal denials of reimbursement by payers for samples processed in 2018. The company cautioned, though, that it doesn't expect this level of appeals revenue in the future.

Guardant Health's operating expenses soared 47% higher year over year. But while spending rose across the board, the rate of increase was much less than its rate of sales growth. As a result, the company's bottom line trended in the right direction.

Looking ahead

Some might be concerned that Guardant Health's growth is slowing. The company provided full-year 2020 revenue guidance of between $275 million and $285 million, with 31% year-over-year growth at the midpoint of this range. However, it's to be expected that the rate of growth would slow somewhat after the initial launches of the company's products. Also, even the low end of Guardant Health's projected revenue range is higher than the consensus Wall Street estimate of $273.1 million.

The company anticipates a full-year 2020 net loss of between $155 million and $160 million. Based on the weighted-average number of shares used in calculating Q4 results, this range translates to a net loss per share of between $1.65 and $1.70. This outlook is worse than the average analysts' estimate of a net loss of $1.20 per share in 2020.

I wouldn't be overly concerned about the company's full-year guidance for its bottom line, though. CEO Helmy Eltoukhy said that Guardant Health plans to crank up its investment in the LUNAR program. With a huge market potential for the LUNAR liquid biopsies in early detection of cancer and recurrence monitoring, that's an investment that should pay off in a major way. 

What about the coronavirus worries that hammered many other stocks on Monday? Again, I don't think there's a reason to worry. Growth stocks  such as Guardant Health often take a bigger beating in market pullbacks than other stocks do. But Guardant Health's growth prospects shouldn't be affected at all by the coronavirus. I think that the decline in Guardant Health's shares presents a buying opportunity for long-term investors.

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