On Thursday, FoxHollow Technologies
Nevertheless, the market showed the stock no mercy as the company lowered its full-year earnings guidance. The stock closed Thursday at $28.90 on nearly 10 times its normal trading volume, a 20% decrease from Wednesday's closing price of $35.91.
While the punishment was quite severe for a company just breaking into the black, the company's future guidance falls well short of Wall Street's expectations. According to a Thomson Financial poll, analysts were expecting a FY 2006 loss of $0.17 per share. The company, however, issued new guidance indicating a loss between $0.35 and $0.39 per share, a hefty drop from its previously predicted loss between $0.07 and $0.22 per share. The revised outlook promptly led Piper Jaffray and First Albany Capital to downgrade their previous ratings on the stock.
The updated loss-per-share estimates include approximately $23.6 million in stock-based compensation and a one-time charge of $3.5 million related to the assignment of a facility lease.
While the turn to profitability is promising, I do understand Wall Street's caution with respect to the company's stock price. The company has cutting-edge technology, designing and selling medical devices for the treatment of peripheral artery disease. However, FoxHollow itself notes in its 10-Q that the company's business relies primarily on a single product, the SilverHawk. The SilverHawk is a minimally invasive single-use catheter system designed to remove plaque from arteries.
The company also notes in the "Risk Factors" section of its 10-Q that "Growth in the demand for SilverHawk has slowed, and our failure to generate additional demand may negatively impact our operating revenue." Among other risks, it also mentions the limited long-term safety data on the SilverHawk.
While these caveats are presented more to allow the company's 10-Q to conform to SEC guidelines than to suggest that the future growth of SilverHawk is doomed, they do point out slowing demand and the company's huge reliance on a single product. The profits FoxHollow is now turning in are certainly commendable, and it's positioned in a very lucrative industry, should its demand kick up. For the time being, though, I'm inclined to wait and see rather than charging in to buy.
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Fool contributor Billy Fisher does not own shares of any of the companies mentioned.