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Why Guardant Stock Just Popped 10%

By Rich Smith – Feb 26, 2020 at 1:22PM

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After the sell-off comes the bounce-back.

What happened

Guardant Health (GH -4.70%) stock has had a rough week -- and the week's only half over.

Between two days of non-stop, coronavirus-inspired selling on the Nasdaq, and an earnings report that warned of greater-than-expected losses in fiscal 2020, shares of this health industry pioneer in the field of liquid biopsies saw its stock tumble 15% from Friday's close through close of trading last night.

Luckily, Guardant shareholders are making some of their money back today. Guardant Health stock is up 10.3% as of 12:45 p.m. EST.

Kid jumping on trampoline

Image source: Getty Images.

So what

Why did Guardant fall so hard earlier in the week, and why is it bouncing back just as hard today?

The first question is easier to answer. Despite more than doubling its sales in 2019 in comparison to 2018, and guiding Wall Street to expect 31% sales growth in the year to come ($280 million in projected annual sales), Guardant warned investors that its net loss is likely to more than double to anywhere from $155 million to $160 million this year.

Under generally accepted accounting principles (GAAP), that works out to a loss of about $1.65 to $1.70 per share, far worse than Wall Street feared the losses would be. Combined with an overall panic on Wall Street over COVID-19 -- the disease caused by the novel coronavirus outbreak -- and a sudden risk-off mentality that was punishing money-losing stocks in general, and a sell-off seemed inevitable.

Now what

Why is Guardant bouncing back, and will the bounce-back continue?

That depends. If you assume that a lot of the selling over the past two days was traders shorting stocks in anticipation of further declines, then today's 10% share price spike at Guardant might be merely evidence of traders closing their short positions -- buying back shares at lower prices than they sold them earlier, and reaping the gains as profit.

Of course, there's always the possibility that longer-term investors are looking at Guardant stock and saying to themselves, "Gee, this profitless stock sure looks cheap at only 37 times sales."

But I tend to think it's the short thing, myself.

Rich Smith 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.

Stocks Mentioned

Guardant Health Stock Quote
Guardant Health
GH
$49.51 (-4.70%) $-2.44

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