EXAS Surges on Quarterly Results (EXAS) By Michael Kramer | February 22, 2017 — 1:05 PM EST
Exact Sciences Corp. (EXAS) surged 12.6% on Tuesday to $22.50 on 12 million shares of volume, which is nearly six times the average volume. The company reported fourth quarter 2016 revenue of $35.2 million, versus expectations of $35.11 million. For the full-year 2016, the company reported revenue of $99.4 million, versus expectations of $99.19 million. The key to the stock price surge was the 2017 guidance. The company announced plans to have sales of approximately, $170-$180 million, vs. expectations of $162.6 million. The company also noted it saw the cost of Cologuard declining to $170 from $201 during the quarter. The company expects Cologuard volume of 415,000 in 2017 and 88,000 in the first quarter. Cologuard is the company's screening tool for adults 50 years or older for colorectal cancer.
The company's revenue growth has been at a blistering pace, since December of 2014. I complied a list of data from YCharts on EXAS.
The outpacing of revenue growth over the cost of goods sold is leading to the expansion in gross profit and gross profit margins. Cost of goods sold is leading to the expansion in gross profit and gross profit margins.
This is great, but for a company with revenue of $100 million and a market cap of $2.5 billion, there had better be more to the story than gross margin expansion. EXAS going to need growth and lots of growth to support its nearly 25 times sales multiple.
Analysts are expecting revenue to rise to $162.6 million in 2017, which is too low given the company guided for $170 to $180 million in revenue. Analysts are expecting revenue of $253 million 2018, which would drop the price-to-sales multiple down to about 10.
The company does have cash and cash equivalents of $48.9 million on December 31st, 2016, up from $41.1 million in 2015. Meanwhile, it also has marketable securities of $262.1 million at the end of 2016, down from $265.7 million at the end of 2015. The company reported a loss of $167.2 million in 2016, which was worse that the $157.8 million in 2015.
According to an SEC filing,the company had a secondary offering on July 27th, 2016 at a price of $15.50. It issued 8.5 million shares, and the company raised $126.2 million in proceeds, net of fees. The company had previously completed a secondary offering of 7 million shares back in July of 2015, at a price of $25.50, raising $175 million net of fees. The company has had to complete a secondary in each of the past two years to fund the cost of operations.
The secondary offerings create dilution, which is always a risk when investing in a growing company. However, with guidance of $170-180 million in revenue in 2017, it would seem less likely for them to have to raise more cash in 2017. The company did a do a good job in 2015, but still the company would be cutting it very close regarding net profit and cash flow. I would not be surprised to see the company do another offering at some point in 2017 to add some cushion to their balance sheet.
The stock at current valuation may be slightly ahead of itself. The company offers a product in a growing segment and has the revenue growth to gain the interest of investors looking to get involved in a high-growth business. In addition, when companies are supposed to grow and investors are paying high multiples, there is little if any room for error. Simply put, if the company doesn't beat expectations and boost its numbers in the coming quarters, you are likely to see a lot of volatility.