Shares of medical instruments and supplies company AngioDynamics (ANGO -0.14%) have plunged nearly 25% in 2022, significantly underperforming the S&P 500, which is also down 7% this year.
Was the sell-off of AngioDynamics stock justified? More importantly, could its shares be a buy for growth investors at the current price? Let's dig into the company's fundamentals and valuation to address these questions.
Overcoming ongoing COVID-19 obstacles
When the Latham, NY-based medical devices company reported its second-quarter results earlier this month for the period ending Nov. 30, it beat analysts' sales estimates while falling short of the non-GAAP (adjusted) earnings-per-share (EPS) consensus.
AngioDynamics generated $78.3 million in revenue during Q2, which represents a 7.6% growth rate against the year-ago period. This narrowly beat the average analyst prediction of $77.9 million. So, how did the company accomplish this despite COVID-19 challenges from the delta variant throughout most of the quarter and the omicron variant during the last few days of the quarter?
The medical device segment, which comprises the majority of AngioDynamics' revenue, was basically flat in Q2. Revenue was up 0.8% against the second quarter of the prior year to $59.4 million. The fact that AngioDynamics was even able to grow its medical device segment revenue is impressive. That's because staffing shortages exacerbated by COVID once again led to pressure on elective procedures, bringing down their volumes. During the company's earnings call, CEO Jim Clemmer remarked that medical device revenue would have grown in the high-single digits when the $4 million backlog in elective procedures stemming from COVID disruptions were included.
The primary growth driver for AngioDynamics in Q2 came from its medical technology segment. This segment includes products such as Auryon (a peripheral artery disease treatment), NanoKnife (minimally invasive treatment for patients with advanced or inoperable cancers), and the company's AlphaVac Mechanical Thrombectomy device (for patients with blood clots).
AngioDynamics' higher gross margin medical technology segment managed to grow its revenue 36.4% year over year to $18.9 million in Q2. The huge growth of the medical technology segment helped advance its share of total revenue from 19% in the year-ago period to 24.1% in this fiscal year's Q2.
The company's medical technology segment is less impacted by supply chain challenges due to more robust supply chain planning, which explains its higher margins and growth compared to the medical device segment.
Moving to profitability, AngioDynamics recorded a non-generally accepted accounting principles (GAAP) loss per share of $0.02. This was compared to non-GAAP EPS of $0.01 in the year-ago period. AngioDynamics' net loss per share came in below analysts' expectations of $0.005 in non-GAAP EPS.
AngioDynamics' loss in Q2 can be explained by a 340-basis point decline in gross margin to 51.8%, which was due to increased labor and raw materials costs. However, it's worth noting that as the medical technology share of its business continues to grow, the company should become consistently profitable.
Plenty of liquidity to keep growing
AngioDynamics' ability to execute on its plan to become a predominantly medical technology business will require access to capital to continue innovating with new product launches.
Luckily, AngioDynamics' balance sheet had a balance of $34.3 million in cash at the end of Q2 against $25 million in long-term debt. This works out to a net cash position of $9.3 million. When considering that the net cash balance only dipped a bit from $10.5 million in the first quarter, it looks like AngioDynamics has enough cash to sustain itself for at least the next several quarters.
A low valuation comes with tremendous potential upside
It appears the market was turned off by AngioDynamics' earnings miss in Q2. Along with the market downturn, this could explain the stock's poor performance as of late. That leads us back to whether the sell-off was justified and whether the stock is a buy for growth investors.
If an investor believes that the increasing weight of the medical technology business and an eventual reversion to normal in the medical device segment will lead to profitability, the decline in AngioDynamics' stock price was overdone.
At the current $22 share price, AngioDynamics is trading at a price-to-sales (P/S) ratio of just 2.7. Against the 8% annual sales growth that analysts expect for the current fiscal year and next fiscal year, this is an attractive price to pay for growth investors. AngioDynamics' cheap valuation is also backed up by the fact that the one-year analyst price target for the stock is more than 50% above the current share price at $33.