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Here's Why Guardant Health Dropped Today

By Brian Orelli, PhD - Mar 9, 2020 at 12:10PM

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Investors can't figure out how to value this high-growth company.

What happened

The roller coaster for Guardant Health (GH 5.81%) continues, with shares down 10.1% to $70.22 at 11:45 a.m. EDT today. Since closing at $84.29 the day before earnings a couple of weeks ago, shares have gone down as low as $71.52, as high as $87, back down to $73.15, and back up to $84.29 before falling over the last two trading days.

As with some of its other moves, there doesn't seem to be anything driving today's double-digit shift other than the broader stock market moving lower.

So what

Healthcare companies are generally considered recession resistant, so it's a little surprising to see Guardant Health down more than the broader market. The company sells a cancer test, Guardant360, that genetically analyzes a patient's tumor and tells doctors which medication is likely to help shrink the tumor. Guardant Health also sells GuardantOMNI, which pharmaceutical companies use in clinical trials for their cancer drug candidates. Even if the COVID-19 coronavirus outbreak gets worse, people are still going to get cancer and need to figure out which treatments are required.

Doctor working at a computer.

Image source: Getty Images.

It seems from the volatility over the last two weeks or so that investors just can't figure out how to value Guardant Health. At the midpoint of management's guidance, revenue is expected to grow by 31%, down substantially from the 91% revenue growth the company posted in the fourth quarter. Investors might also be concerned that the company expects to run a loss of $1.65 to $1.70 per share this year, larger than last year's $0.84 per share.

Now what

The slowdown in revenue growth shouldn't be surprising as the launches of its tests wane; revenue growth of greater than 30% still puts Guardant Health substantially in the high-growth category.

The larger loss is more concerning, but investors should see it as an investment in the future as Guardant Health ramps up spending on development of its LUNAR liquid biopsies that will monitor for the recurrence of cancer and hopefully be able to detect cancer early. Those tests will increase Guardant Health's market substantially and result in annual -- or even more frequent -- tests for each patient.

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