Why Genomic Health Inc. Shares Spiked 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 Genomic Health , a developer of genomic-based solutions that allow doctors to personalize treatments for cancer patients, gained as much as 18% after reporting market-topping third-quarter earnings results.

So what: For the quarter, Genomic Health delivered a revenue increase of nearly 13% to $66 million, driven by a 25% increase in international product sales which now account for 15% of total sales. However, net income for the quarter declined to $0.5 million (an adjusted EPS of $0.02) from $3.7 million in the prior year. Comparatively, Wall Street had been forecasting just $65 million in revenue and a loss of $0.04 per share, so this was a sizable beat on both accounts.

Now what: There's certainly a lot to like about Genomic Health with its OncoType DX genetic test, which can help predict the benefits of chemotherapy in select types of breast cancer, colon cancer, and prostate cancer. I'm a firm believer that personalization of medical care is the next step in the evolution of treating cancer and Genomic Health is perfectly positioned in that regard. However, Genomic Health also comes with a premium valuation that includes a forward P/E in excess of 200! This company's valuation has long been a hump for me that I've simply been unable to overcome.

Although my skepticism has clearly been a bad move given today's gains, I feel it could be a few years before the bottom line catches up with the rapid growth of Genomic Health's share price and would still urge only more risk-willing investors this give this company a look. It's certainly a name for all investors to keep on their watchlist, though.

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The article Why Genomic Health Inc. Shares Spiked 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, and recommends Genomic Health. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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