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Here's Why NeoGenomics Fell as Much as 20.2% Today

By Maxx Chatsko - Feb 27, 2020 at 12:38PM

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The cancer genetics company reported full-year 2019 operating results, but that's probably not the reason for the decline.

What happened

Shares of NeoGenomics (NEO 2.69%) fell more than 20% today after the company reported fourth-quarter and full-year 2019 operating results. If investors are a little confused, that's probably the right reaction.

NeoGenomics reported full-year 2019 revenue of $408.8 million and adjusted earnings per share (EPS) of $0.31, whereas Wall Street was expecting $406.2 million and $0.28, respectively. The company's initial full-year 2020 guidance forecasts revenue of $469 million at the midpoint, whereas Wall Street is expecting only $448 million.

Therefore, it's more likely that the stock fell on macro concerns related to the economic impact of the coronavirus outbreak, not in response to the earnings report. As of 12:54 p.m. EST, the growth stock had settled to a 10.5% loss.

An angry fist pounding the table as a declining stock chart displays on a tablet.

Image source: Getty Images.

So what

NeoGenomics is the only pure-play oncology genetics reference lab. It has certainly made the most of the niche. Case in point: Full-year 2019 revenue jumped 40% from the year-ago period.

While investors have rewarded the company's growth in recent years, the market can get a little carried away when it comes to valuing growth stocks. When the first hint of economic turbulence arises, significant adjustments often aren't far behind. Shares of NeoGenomics trade at a frothy 87 times future earnings, 8.9 times sales, and nearly 7 times book value -- and each of those includes today's drop.

Now what

To be fair, investors have focused on revenue growth, not profitability, for NeoGenomics. The business is spending heavily to capture an above-average growth opportunity, but it still manages to squeak out profits. That makes this one of the more responsible high-growth companies in the field of genetic testing.

While all growth stocks are taking a beating as the overall market declines, investors might begin to make a distinction between companies achieving profitable growth and those chasing growth at all costs. Therefore, investors shouldn't be surprised if shares of NeoGenomics recover from the recent tumble in the coming weeks and months.

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

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