What happened
Shares of Organogenesis Holdings (ORGO 2.85%) fell by 19.6% as of 2:45 p.m. ET on Wednesday after the wound care company reported worse-than-anticipated Q2 earnings and also slashed its guidance for the rest of 2022. Its net revenue for the quarter was $121.4 million, a decline of 1% year over year, and its net income collapsed by 58% year over year to reach $8.7 million.
For its fiscal 2022 earnings guidance, management now expects net revenue of between $465 million and $490 million, whereas in its initial guidance, it expected between $485 million and $515 million.
So what
It's clear that uptake of the company's surgical and sports medicine products, as well as its advanced wound care products, is going worse than expected. Management didn't offer too many clues about why that might be, save for citing the "challenging operating environment" in a likely reference to a combination of supply chain issues, inflation, and unstable demand.
So until that environment changes for the better, it's hard to be optimistic for the company for the rest of 2022.
Now what
Despite the whiff on its earnings target and its lower guidance, Organogenesis should still be able to pursue its strategic goal of ramping up sales of its advanced wound care products that are derived from placenta. Likewise, as it's still profitable, there aren't any obvious barriers that would prevent it from continuing to scale up its sales force while making improvements to its manufacturing efficiency to reduce its cost of goods sold (COGS) and marketing its products to new end-users in hospital operating rooms.
In other words, the poor quarterly report hasn't actually changed much about the company's future prospects, even though it's damaged the share price.
Therefore, while it might never grow very quickly or outperform the market as a result of its somewhat small niche, if you've been keeping an eye on this stock for an opportunity to make a purchase, this might be it.
