Take Long View

What: Shares of Cepheid (NASDAQ:CPHD), a developer of molecular diagnostic tests used in managing infectious diseases and cancer, plunged around 12% today after the company reported its second-quarter earnings results. 

So what: Cepheid reported revenue of $132.5 million for the quarter, which was good enough to show 14% growth over the year-ago period. Net loss came in at -$0.23 for the quarter, which was slightly worse than the -$0.21 net loss than analysts were expecting. 

The company managed to install 270 of its GeneXpert systems in the clinical business as well as 312 systems as part of its High Burden Developing Countries program. In total, the global install base now stands at 8,903 systems worldwide.  

Management is guiding for third quarter revenue of $125 million to $128 million, and the company raised the lower end of its revenue guidance for the year by $2 million, which is now expected to land between $544 and $553 million. GAAP net loss estimates ticked down by -$0.04, and is expected to be in the range of -$0.51 to -$0.47 per share. It is worth noting that on a Non-GAAP basis the company is projecting itself to be profitable for the year, with net income in the range of $0.25 to $0.29 per share.

Now what: While it's possible that today's market reaction is related to the slightly higher than expected net loss, it's more likely that shares are moving so much from disappointing third-quarter revenue guidance and a downgrade that the company received today. Evercore ISI analyst Vijay Kumar moved Cepheid's stock from a hold to a sell, with a price target of $53.50, which is still below where the stock is currently trading even after today's big downward move. 

The rational for the downgrade was due to the recent strength of the stock since Cepheid last reported earnings, stemming from excitement over new products in the pipeline and general optimism in the sector. However, the analyst noted that commercial clinical revenue growth slowed in the second-quarter, and that third-quarter revenue guidance of $125 to $128 million is below the Street's current estimates of $136 million. The analyst is predicting that Cepheid's multiple is likely to compress to around 6 times 2016 revenues, and hence downgraded of the stock to a sell.

Analysts upgrade and downgrade stocks all the time, which can significantly impact stock prices in the short term. However, Cepheid has nearly $300 million in cash and short-term investments on the balance sheet, and is operating cash flow positive, so if you were bullish on Cepheid's long-term potential before the downgrade, I see no reason to be overly worried about today's price movement.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.