Online stock trading is popular primarily because of the various features offered by the online stock brokers including commission free trading and free trading software. But you still need to have a clear idea about the stocks or industry to pursue. That’s where experienced analysts can pitch in with their recommendations.
What’s Exciting This Analyst?
Motley Fool analyst Maxx Chatsko is really excited about one stock. And that has to do with the genetic industry, specifically the genetic testing industry. If you haven’t heard of this particular segment of the industry, it isn’t surprising since it is still in its nascent stages. So why focus on a stock in this field? Well, Chatsko reckons there is one stock that is reaping profits and is on a growth spree. That’s worth turning one’s attention to, and that stock is Genomic Health ($GHDX).
Genomic Health Is Enjoying Rising Revenue
Genomic Health experienced a significant revenue increase of 17% from the same period a year ago. In fact, 2019’s first quarter witnessed tremendous operational performance. The $11.5 million operating income was somewhat equivalent to around half of 2018’s total income. As March ended, the company boasted $206 million worth of marketable securities, cash and cash equivalents.
But Stock Market Isn’t Rewarding the Growth
But still Genomic Health sank 11% in the stock market. That can be explained by the fact that the company’s management did not raise its full-year revenue guidance for 2019 from last year and kept its initial growth expectations in the region of 11% to 14%. But with revenue in the first quarter already having grown 17% year over year, the restrained growth expectations of the company indicates growth will slow down from that opening quarter. That didn’t make investors happy.
If Others Don’t See the Positives, Make the Difference
But Chatsko reckons that if you have a long term mindset, you don’t need to be too concerned about the company’s restrained revenue guidance. The stock slide actually provides an opportunity to buy. The $108.8 million Q1 revenue reported by the company has been powered by the rise in sales of its core products. And in the process, Genomic Health has actually reduced the cost of these products by 9%.
So while the sales growth accounted for 17% of the company’s revenue growth from the same period last year, the reduced manufacturing costs of the products sold actually resulted in the company significantly raising its gross profit. There was also a reduction in the R&D costs that compensated for the rise in the marketing and selling expenses. The operating income has, as a result, experienced a positive sway of $16 million.
Breakup of Revenue Growth
Chatsko includes a table containing data from the SEC filing press release that breaks up the income and compares each segment with the year-ago period:
Increase in Tests Sold Significantly Accounts for Revenue Rise
The table shows that the company had a significant rise in the tests sold. The rise in breast cancer tests and prostate cancer tests can be accounted for by the Oncotype DX Breast Recurrence Score test and the Oncotype DX Prostate Score test results that numbered more than 37,580. Chatsko reports that this was a 16% rise from the same year-ago period. In March, there were some clinical study results reported. There was also the TAILORx trial from last summer. This showed how Oncotype DX tests were essential for personalizing treatment and improving outcomes for patients.
This data can help Genomic Health earn expanded reimbursement and insurance coverage globally in the US. That makes up an integral part of the company’s growth strategy. Chatsko estimates that the fact that many analysts and investors have not realized this potential of the company actually gives individual investors a golden opportunity to capitalize on the reduced price of the stock.
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