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Why Guardant Health Fell More Than 5% Today

By James Brumley – Jan 12, 2022 at 10:56AM

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The healthcare company can't provide a clear picture of where it is with respect to the COVID-19 pandemic.

What happened

Shares of health diagnostics outfit Guardant Health (GH -7.12%) are lower by 5.7% as of 3:38 p.m. ET Wednesday, renewing and extending a sell-off that first took shape in February of last year. The continued weakness is ultimately the result of selling after Guardant stock got ahead of itself in the wake of 2020's COVID-19 pandemic onset.

So what

Don't look for a specific catalyst behind today's tumble. You won't find one. Rather, Wednesday's weakness simply extends what's now become more than a 50% pullback that puts Guardant Health shares back within reach of new 52-week lows brushed earlier this month. On the other hand, the stock's 200% run-up from its early 2020 low to last year's peak left it vulnerable to this recent selling.

Falling chart plotted on a chalkboard.

Image source: Getty Images.

The rise and fall mostly reflects uncertainty surrounding the company's business.

Guardant predominantly makes cancer-testing equipment and supplies, which is a reliable market when there's not a pandemic. But, for a short while Guardant Health also made COVID-19 tests that were given Emergency Use Authorization by the Food and Drug Administration. When demand for the former was crimped, it was offset by demand for the latter. The company's 2020 top line was still up 34% year over year.

Nevertheless, CEO Helmy Eltoukhy cautioned shareholders in late 2020 that the pandemic's lingering may ultimately produce more of a headwind than tailwind. Investors took him at his word, getting out of the Guardant positions over the course of the past year that they poured into in 2020.

Now what

The sell-off will end sometime, if only because nothing lasts forever. We may be closer to that point than not.

As it stands right now though, there's no way of knowing when shares of this still-unprofitable organization may hit bottom and begin to bounce. Sentiment surrounding Guardant Health remains more than a little on the lousy side, and jumping in here is more risk than is merited.

That's not to suggest Guardant must start turning regular profits before it's a worthy -- even if speculative -- buy. Given the speed of the mostly unfettered sell-off though, it is to say would-be buyers need to think it through, and have an exit plan in place before any entry is made. Most investors would be better served by steering clear of the stock altogether for the foreseeable future.

James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Guardant Health. The Motley Fool has a disclosure policy.

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