The stock price of Abiomed (NASDAQ:ABMD), a medical devices company best known for Impella, the world’s smallest heart pump, is up roughly 60% since the beginning of this year, significantly outperforming the broader markets, with S&P 500 up a mere 7%. Despite the rally, at the current price of around $270 per share, we believe Abiomed has more room for growth. Why is that? The key is ABMD stock is still 17% lower than it was at the beginning of 2019. Our dashboard, Why Abiomed Stock Moved -17%?, provides the key numbers behind our thinking, and we explain more below.
Abiomed’s fundamentals have been solid over recent years. It has seen a 41% revenue growth from $594 million in fiscal 2018 (fiscal ends in March) to $841 million in fiscal 2020. The company also managed to grow its Net Margins from 18.9% to 24.1% over the same period. This clubbed with a 2.3% increase in shares outstanding, due to issuance of shares, meant that Abiomed’s earnings grew a solid 77% from $2.54 to $4.49 on a per-share basis.
Despite a strong top-line and bottom-line growth, the stock price has declined. This can be attributed to a contraction in P/E multiple from 128x in 2018 to 60x currently, as the multiple earlier reflected elevated investor expectations from Abiomed. That said, we believe there is more room for growth for ABMD stock after the fall in its multiple.
So what’s the likely trigger and the timing for upside?
Abiomed is not immune to the current pandemic. The global spread of coronavirus has meant lower sales for the company’s devices, due to lower patient volumes after deferment of elective procedures and wellness visits. Abiomed posted a 21% drop in sales to $164.9 million in Q1 fiscal 2021, compared to $207.7 million in the prior-year period. The earnings declined from $1.97 in Q1 fiscal 2020 to $0.99 in Q1 fiscal 2021, on a per-share basis. However, the company’s management in its earnings conference call has stated that revenues grew month-on-month during Q1, and June sales were actually up 4% y-o-y. Additionally, the US FDA in August issued an emergency use authorization (EUA) for the use of Impella to support therapy for Covid-19 patients. Impella combined with ECMO (extracorporeal membrane oxygenation) therapy is said to help physicians treating Covid-19 patients with both heart and lung failure. The recent FDA authorization is for left ventricular complications while EUA for right ventricular complications was issued in May. Furthermore, with the world economies gradually opening up, the demand for Impella is also expected to increase in the near term.
The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. As such, ABMD stock will likely see higher levels in the near term. ABMD stock at $270 is trading at 51x fiscal 2021 average consensus earnings of $5.29 per share. The trading multiple now appears to be attractive compared to the levels of over 100x seen in 2018.high-quality portfolio to beat the market
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