One of the largest drops on Friday’s markets came from a surprisingly well-established company that has been a bullish pick from experts for a while.
Merit Medical Systems (NASDAQ: MMSI), which is among the world’s top manufacturers of disposable medical devices, saw it’s shares plunge by 26% on Friday as second-quarter earnings results failed to impress.
While the figures in question were a little disappointing, in and of themselves they weren’t enough to cause such a substantial drop in stock price. Instead, heavy short selling from traders helped push the stock down to a record low not seen in almost three years.
Overall, revenue grew by 14 percent to $255.5 million, while core revenue grew only 9.6 percent. Non-GAAP net income per share fell by just one cent to $0.42, while the company’s gross margin fell by 0.70 percent down to 43.8 percent.
All of these figures fell short of what Wall Street was expecting from the company, and Merit’s management team ended up dialing back on its full-year guidance. While these Q2 earnings weren’t as terrible as one would think, certainly not enough to justify a 26 percent drop in stock price, traders jumped on the opportunity to short the stock in response to the news.
“There were a number of factors affecting revenues and gross margins during the second quarter,” said Fred P. Lampropoulos, Merit’s Chairman and Chief Executive Officer in a press release. “The shortfall in revenue involved foreign exchange, slower than anticipated conversion and uptake of acquired products such as the Vascular Insights (ClariVein®) product line and some products from the BD acquisition. Additionally, we saw sales of legacy products increase more than expected. Of course the combination of lower than expected revenues and the mix resulted in lower gross margins. The silver lining is the core growth and the management of SG&A expenses which were in line with our expectations.”
Prior to this plunge, Merit’s stock was trading around 70 times trailing earnings, an extremely lofty valuation that partially explains why shares dropped as suddenly as they did, with markets no longer thinking that the stock warranted such an appraisal.
Now that the stock is trading around 17 times 2020 earnings, a strong case could be made that Merit is now a buying opportunity for more value-minded investors.
Shares of Merit tumbled by 25.3 percent on Friday in response to the news. A substantial decline for a $2.3 billion company, today’s fall marks the worst day in for the company in almost three years. Prior to this, Merit had been steadily rising in value considerably over the past few years, with only the past six months seeing this optimism peter out somewhat.
