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Why Endologix Inc. Shares Were Clobbered

By Sean Williams - Feb 28, 2014 at 12:53PM

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Endologix shares got hammered after it reported mixed fourth-quarter results. Find out if this swoon is a buying opportunity or a reason to keep your distance.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Endologix (ELGX.Q), a developer of medical devices targeted at aortic disorders, were pummeled and fell as much as 28% after reporting disappointing fourth-quarter-earnings results.

So what: For the quarter, Endologix reported revenue growth of 21% to $35.2 million as U.S. revenue rose 8%, while international sales soared 69% due to AFX and Nellix direct sales growth. Gross margin, however, fell slightly to 74% as its adjusted net loss shrunk considerably to just $0.1 million -- or what is essentially breakeven on an EPS basis -- versus a loss of $5.5 million in the year-ago period. Wall Street, by comparison, was looking for a wider loss of $0.05 per share, so this was a nice beat.

But Endologix's fiscal 2014 guidance calls for $146 million-$152 million in revenue (11%-15% growth) and an adjusted EPS loss of $0.04-$0.17. The Street had been projecting $161.2 million in sales for the year with breakeven EPS. On the heels of these slower growth expectations, Oppenheimer downgraded the company from outperform to perform, and Stifel Nicolaus chopped its price target on Endologix by 15% to $17.

Now what: On paper, Endologix looks like a company that's poised to outperform over the long-run with a moat of opportunity overseas and a rapidly aging global population. I suspect today's swoon could just be a temporary lull as it educates overseas and U.S. physicians about its new product launches, and I would be willing to give the company a slight pass on that accord. If, however, Endologix's 2015 is shaping up with even slower growth, I would certainly suggest that there could be deeper problems here. Long story short, there is upside potential following today's haircut, but this stock isn't for the risk averse.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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