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Should Investors Be Worried About DermTech's Decline From Its 52-Week Highs?

By Brian Orelli, PhD and Keith Speights - Mar 25, 2021 at 10:10AM

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Think long-term with this dermatology company.

DermTech (DMTK 0.83%) is trading well off its 52-week high of $84.49 per share while investors try to figure out how to value the prospects of the dermatology company. In this video from Motley Fool Live, recorded on March 8, Fool.com contributors Brian Orelli and Keith Speights talk about what the company is doing to grow sales of its melanoma test and why the recent decline shouldn't be a big concern for long-term investors.

Brian Orelli: Max asks, any info or thoughts on DermTech following and its prospects, bought it a high valuation and think they are creating fantastic products, so the sell-off is a little disconcerting.

Keith Speights: I wouldn't be too worried, Max. DermTech is like some of the biotech stocks Brian and I were talking about earlier. DermTech is based in large part, its valuation, is based in large part on just expectations of future growth. When there's big sell-offs like we've seen, stocks like DermTech tend to get hammered harder than more established companies' stocks do. I think that's what we've seen.

Look, the market cap now is around $1.2 billion for DermTech. The company has a market, it's going after, that's a $10 billion annual market, and they are the leader in developing skin genomics products. I'm a DermTech shareholder. I have very high expectations for DermTech. I'm not concerned. I have bought the stock before the big sell-off and it didn't bother me at all because I'm holding it for the long term. I don't think DermTech is a stock that you buy and expect that everything is going to be great in two months, I think DermTech is a stock that you buy and hold for a few years. Over the next few years, I think we're going to see this company make big inroads into the dermatology market, and I remain really optimistic about its prospects.

Orelli: They're really building the sales right now. I mean, if you look at their gross margins, their gross margins are negative because they're basically giving away the test to a lot of people to try to get the doctors comfortable with using the test. So for people that don't know, their main test is basically like a tape that rips off part of a lesion that is funny looking. Instead of doing a biopsy, doctors can use this tape and then send in the tape, and then they do genetic testing on the tape, and that they try to figure out whether it's likely to be malignant or not. It could theoretically save quite a few biopsies, which are obviously very difficult and painful and more expensive, and so I think that's really the main benefit. But because doctors are just so used to doing biopsies, I think it's going to take a while before -- then they basically have to give it away for free to try to convince doctors to use it to get them to become comfortable with the DermTech's results.

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