What happened

Shares of Zynex (NASDAQ:ZYXI) were tanking 26.5% lower as of 11:20 a.m. EDT on Monday. The big decline came after the medical technology company announced lower-than-expected orders for the third quarter and lowered its third-quarter revenue estimate because of the impact of the COVID-19 pandemic.

So what

Today's sell-off might seem like an overreaction. After all, Zynex still expects that its orders in Q3 will increase 96% year over year and 87% from the previous quarter. The company's Q3 revenue estimate is now between $20 million and $20.5 million. While that's down from the previous guidance range of $22.3 million to $22.8 million, it reflects a decrease of only 10% at the midpoints of the ranges.

Businessman looking at red line crashing through the floor

Image source: Getty Images.

Zynex also still expects that its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will be between $2.3 million and $2.8 million, in line with its previous outlook. The company projects that full-year 2020 revenue will be between $80 million and $81 million, within its previous guidance of full-year revenue between $80 million and $85 million. 

The problem for Zynex, though, is that its valuation is priced for perfection. The healthcare stock trades at nearly 44 times expected earnings. Any bad news is likely to take a toll when a stock trades at such a lofty level.

Now what

In the short term, the main thing to watch with Zynex is how the COVID-19 pandemic might continue to impact its order growth. Over the longer term, though, the company's expansion of its sales force could pay off in higher revenue.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.