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Here's Why Guardant Health Tumbled Today

By Maxx Chatsko – Feb 25, 2020 at 1:17PM

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The company expects losses to more than double in 2020, which caught Wall Street analysts by surprise.

What happened

Shares of Guardant Health (NASDAQ:GH) fell as much as 10.9% today after the company reported fourth-quarter and full-year 2019 operating results. The liquid biopsy pioneer delivered an impressive year of operations. Revenue jumped 136% compared to 2018, while both operating loss and net loss improved by about $10 million in that span. 

While no one is questioning the strength of operations in 2019, Wall Street analysts appear to have been caught off guard by one component of the full-year 2020 guidance. As of 12:48 p.m. EST, the growth stock had settled to a 9% loss.

A chart on a chalkboard showing steady gains and then a sudden loss.

Image source: Getty Images.

So what

Guardant Health expects full-year 2020 revenue of about $280 million, representing year-over-year growth of 31%. Wall Street analysts were expecting an average of only $274 million. Given the company's history of underpromising and overdelivering, investors shouldn't be surprised if actual revenue totals eclipse Wall Street projections by an even wider margin. 

The issue is that Guardant Health expects full-year 2020 net loss in the range of $155 million to $160 million. That's a significant increase from the $75.6 million net loss reported in 2019. 

The expected net loss works out to earnings per share (EPS) of -$1.65 to -$1.70 under generally accepted accounting principles (GAAP), using the number of shares outstanding at the end of last year. Wall Street analysts were expecting an average non-GAAP (adjusted) EPS of -$1.16.

Of course, net loss and adjusted net loss are not the same thing and cannot be directly compared, but the wide discrepancy suggests Wall Street analysts might have to lower their expectations for 2020.

Now what

Guardant Health is making large investments to develop its technology platform. That includes the development of diagnostic tests that could be used in larger populations of individuals, which requires significantly larger testing throughput and improved data processing capabilities. That's all expensive, however, and investors should expect near-term losses to continue as the company invests in its future. As more investors and analysts place increased value on profitable growth and less value on growth at all costs, it could weigh on shares of the liquid biopsy pioneer. 

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Guardant Health. The Motley Fool has a disclosure policy.

 

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