"Foxy, foxy. what's it gonna be?" -- Rob Zombie, "Foxy Foxy"
Oh, the joys of small-cap med-tech investing. Valuations get a little rich, and suddenly everybody freaks out over one quarter with questionable guidance. And such is the case with FoxHollow Technologies (NASDAQ:FOXH). While the company posted a good quarter, worries about revenue (and, more specifically, the timing of that revenue) have the stock down by a mid-teens percentage as of this writing.
First, the quarter that was.
Revenue more than doubled from the year-ago level and climbed 11% on a sequential basis. Reported revenue was boosted by a $2 million contribution from a collaboration with Motley Fool Income Investor pick Merck (NYSE:MRK), but performance of the SilverHawk continues to look solid -- sales were up, volume was up, prices were up, and units sold per account also look like they were up. Margins were also stronger -- the gross margin on product sales jumped significantly from last year and rose five full points sequentially. And while compensation expenses led to an overall net loss for the quarter, the company actually squeaked out a small profit without those expenses.
The bugaboo, though, was in guidance. FoxHollow lowered its sales estimate for the next quarter (principally, because of the timing of revenue from Merck) and didn't raise full-year guidance despite a modest outperformance in this quarter. So, with folks already twitchy about competition and ongoing sales momentum, the stock was dragged into the street and shot over this.
Now, there are perfectly legitimate reasons to be nervous about a company like FoxHollow. There are competitors both great (like Boston Scientific (NYSE:BSX) and Bard (NYSE:BCR)) and small (like Spectranetics (NASDAQ:SPNC)), and probably quite a few venture/research-stage potential players as well. And there's still some turbulence with the salesforce and concerns about the naming of a permanent CEO.
All in all, though, this strikes me as a lot more panic than is really necessary. Sure, this is a risky business, and more med-tech stocks fail than succeed, but it's also a growth opportunity trading at a newly reasonable price. All things considered, it wouldn't surprise me if the SilverHawk flies again and leaves a day like today looking like one of these silly things Wall Street does from time to time.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
