Monday was a somewhat slow day in terms of companies reporting earnings; however like all days during earnings season, opportunity still presented itself. Earnings season is a period where retail investors can either capitalize on great opportunity or can be suckered by what looks like value. In this piece, I am looking at both, one stock that should be avoided, and two stocks to buy.
Speculation and Modest Growth is Not Worth this Stock’s Price
Shares of the tech company Stratasys, Ltd. (NASDAQ:SSYS) traded higher by 7.1% on Monday after the company reported earnings. The company met expectations on the top line with non-GAAP revenue of $96.4 million and beat bottom line expectations by $0.02 with an EPS of $0.40. Stratasys, Ltd. (NASDAQ:SSYS) was one of the best performing stocks of last year but has seen a slow start to the year. Now, investors believe this quarter may jump-start the 3D printing space.
When you consider Stratasys, Ltd. (NASDAQ:SSYS) revenue over the last 12 months was just $359 million, you can see that its market cap of $2.64 billion is very expensive. The stock trades with a price/sales of more than 7.0 yet has top line growth of less than 25%. This supposedly is a high-growth company, one the CEO said is “rapidly growing.”
Although it is growing, much of its upside is tied to the belief that the 3D printing space will grow into the tens of billions in a consumer-driven market. While I don’t know how this story ends in terms of growth within the next five years, I do think that Stratasys’ P/E ratio over 80 is way too expensive for a company that is guiding for growth of 24% in 2013. Therefore, I’d sell and take profits.
An Underperforming Healthcare Stock that Keeps Getting Fundamentally Cheaper
Myriad Genetics, Inc. (NASDAQ:MYGN) fell 2.83% on Monday after reporting earnings that largely exceeded expectations. The company grew by 21% over last year and increased full-year guidance above The Street’s expectations. Myriad Genetics, Inc. (NASDAQ:MYGN) has traded flat over the last year and is currently near the bottom of its range.
Therefore, it’s hard to determine why the stock might have fallen. One possible reason could be fears that Medicare will reduce its pricing for the company’s products. Myriad gets 10% of its revenue from Medicare and this fear, especially after Medicare reduced pricing on Nordion’s product, might have been responsible for the loss.
The good thing about the Medicare concern is that it doesn’t really matter if they reduce pricing; 10% is a small percentage and it’s not as if Medicare would refuse to cover the products, but might reduce pricing by a percentage. This is a very stable company with great margins that is priced very cheap. Remember, Stratasys trades with a P/E ratio over 80 and a price/sales over 7.0. Myriad has very similar growth yet trades with a price/sales of 3.6 and a P/E ratio of 16.5 in a healthcare space that usually boats hefty valuations due to margin strength. To me, this is value, and I’d buy a stock that has much fewer questions compared to the overvalued SSYS.