Abiomed, Inc. (ABMD) has a very unique niche.
It makes temporary heart pumps that allow patients with heart disease and a history of heart attacks to have better protection during surgical procedures.
Basically that means for every significant heart surgery ABMD products are used or are within reach.
Abiomed has been chugging along quite nicely over the last year (it’s up nearly 50%) and even more recently in 2016 where it’s up 10% year to date. But it hasn’t been a smooth ride to be sure.
This is the curse and the blessing of being a leading niche player.
On the one hand, you are a proven player in a growing niche, and on the other hand, if a competitor offers up a better piece of equipment, it could take market share and hurt the stock.
There are a couple of points to make regarding this and other similar concerns.
Minor Risks for Abiomed
First, this market is expanding. Because the Affordable Care Act (aka Obamacare) has restructured the way healthcare is delivered — it’s more focused on the quality of care than the quantity — equipment that allows patients shorter recovery times and less risky procedures is encouraged. This is excellent news for ABMD.
Second, although it is on an upward trajectory, the stock has been fairly volatile because there has been concern about the purchase of a competitor, Thoratec by St. Jude Medical, Inc. (STJ). The story goes that because both Abiomed and Thoratec have devices that are competing for similar approval from the FDA, if ABMD loses, the stock will crater.
This is ridiculous.
Yes the stock has sizable price to earnings, but it’s not outrageous, especially given its continued growth. And bad news will certainly have negative short-term effects on the stock; it would on virtually all companies.
But the approval is for a very limited application, and Abiomed has other products that are already FDA approved that are smaller and just as effective as Thoratec’s device. Also, the study won’t be complete until the end of 2016, so this news has no bearing on the stock at this point.
Also bear in mind, that if STJ decided to buy into the space, that means all the companies are in play.
With a market cap of $4 billion, ABMD can be acquired easily by a big pharma or a diversified healthcare conglomerate. If that happens, the P/E isn’t an issue, and Abiomed would sell at a significant premium to its current valuation. You could even argue that the only thing stopping someone from buying ABMD is its high valuation.
The point is: Abiomed is a very good company that has performed very well while other biotechs and healthcare firms have been knocked around and there’s much more upside than downside here, especially for 2016 and beyond.
Don’t let the naysayers scare you. Stake a claim now, and wait a bit. If the stock falls, grab some more. If it goes higher, slowly buy in.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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