Image source: Myriad Genetics. 

What: Shares of Myriad Genetics (NASDAQ:MYGN), a molecular diagnostics company that works with physicians and patients to personalize the treatment process, sank 11% in February based on data from S&P Global Market Intelligence. The reason? Look no further than the company's second-quarter 2016 earnings report.

So what: For the quarter, Myriad reported revenue of $193.3 million, a 5% increase from the prior-year period. When broken out, pharmaceutical and clinical service revenue more than doubled, and Prolaris testing revenue jumped 375%. However, these are much smaller revenue components for Myriad. Hereditary cancer testing revenue, which is dominated by its BRACAnalysis gene test, rose by just 1% to $166.6 million in Q2 2016.

Image source: National Cancer Institute.

On the basis of profitability, a 2% decline in operating expenses combined with a 5% increase in sales led to an adjusted operating margin of 25%, a 130 basis point improvement over Q2 2015. Adjusted EPS worked out to $0.45 per share, a 13% increase from the prior-year period. On a comparative basis, Myriad topped Wall Street's adjusted EPS projections by $0.04 per share.

Now, here's where things got a bit hairy. Myriad maintained its full-fiscal-year 2016 revenue forecast of $750 million to $770 million but upped its full-fiscal-year adjusted EPS guidance to a new range of $1.63-$1.68 from its prior forecast of $1.60-$1.65. However, for Q3 2016, the company is guiding to a range of $183 million to $185 million in revenue and $0.37-$0.39 in adjusted EPS. Wall Street had been looking for $0.40 in adjusted EPS in Q3, meaning there could be some unbeknownst weakness hiding within Myriad's upcoming results.

Now what: On one hand, Myriad has one of the highest short ratios as a percentage of float of all publicly traded stocks. Pessimism has remained high for years since its hereditary cancer tests are somewhat reliant on government-sponsored reimbursement rates. If those reimbursement rates fall substantially, Myriad's profitability would undoubtedly take a hit.

Growth for Prolaris and BRACAnalysis could also be nitpicked as under par. Quarterly revenue of $2 million for Prolaris, a personalized prostate cancer test, seems disappointing considering prostate cancer is the second-most diagnosed cancer annually, behind only breast cancer. Further, only 1% growth in hereditary cancer testing is slightly worrisome given just how many cases of breast and ovarian cancer are diagnosed in the U.S. annually (BRACAnalysis detects the mutant BRCA1 and BRCA2 genes, which lead to a higher risk of developing breast and ovarian cancer).

On the flip side, cancer incidence rates are increasing, not decreasing, and drug developers are pushing toward, not away from, personalized treatment plans. It would appear that Myriad Genetics is poised to play more of a key role than ever in helping to treat patients. Wall Street's long-term adjusted EPS forecast would concur, with nearly $3 in EPS expected by the end of the decade.

Investors in Myriad have to understand that this isn't a particularly inexpensive company now, but holding over the next five years, or longer, could allow its unlocked value to shine through.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.