Why Genomic Health Shares Rocketed Higher


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of life sciences company Genomic Health (NAS: GHDX) shot up as much as 16% after the company reported its second-quarter results.

So what: For the quarter, Genomic Health reported moderate revenue growth from its Oncotype DX breast cancer and colon cancer tests which help determine treatment paths for patients. Revenue jumped 13% to $57.6 million with the company reporting a profit of $0.06. Although revenue slightly missed Wall Street's mark of $58.3 million, EPS came in $0.08 higher than analyst's expected $0.02 loss. We also received some very rare guidance, with Genomic Health predicting total Oncotype DX results delivery of 75,000-77,000 units, and revenue of $230 million-$240 million with net income of $5 million-$8 million ($0.16-$0.25). The Street had been forecasting revenue for $238.9 million with a profit of $0.01 for fiscal 2012.

Now what: This is a case where I love the concept, the product, and the earnings beat, but I absolutely can't stand the stock. Even with the projections for $0.16-$0.25 in EPS, the company is trading in a range of 143-225 times this year's earnings. What's more, Genomic Health is valued at 78 times forward earnings and a staggering 48 times cash flow. Again, I like the product, but the valuation being placed on this company just doesn't make sense.

Craving more input? Start by adding Genomic Health to your free and personalized Watchlist so you can keep up on the latest news with the company.

The article Why Genomic Health Shares Rocketed Higher originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Genomic Health. Motley Fool newsletter services have recommended buying shares of Genomic Health. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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