Tandem Diabetes Care (NASDAQ:TNDM) shot higher after surpassing earnings and revenue estimates. TNDM stock ended its string of losses and announced that COO John Sheridan would assume the CEO position on March 1. Current CEO Kim Blickenstaff will become Executive Chairman.
However, this places Tandem Diabetes Care stock in an awkward position. The monopoly power that comes with its latest pump should ensure revenue growth for years to come.
However, an unprecedented run from penny-stock status to just above $62 per share over the last year makes a near-term pullback more likely. The move higher over the previous year means TNDM stock belongs on watch lists. However, I would wait for a pullback before putting it in a portfolio.
TNDM stock rose by more than 27% in morning trading following its earnings beat and surprise profit. The San Diego-based firm reported a profit in the fourth quarter of $3.7 million, or two cents per share. Analysts had expected a loss of 20 cents per share.
Quarterly revenue also significantly surpassed estimates, coming in at $76.2 million. This represents an 89.1% increase from year-over-year levels when the company reported revenues of $40 million. Wall Street had previously predicted $56.34 million for the quarter. A 133% increase in the sales of pumps bolstered this increase.
Results for the full-year yielded similar positive surprises. TNDM reported revenues of $183.9 million, a 71% increase over the $107.6 million reported in 2017. However, net losses came in much higher for the year. In 2018, the company lost $122.6 million. Still, that factors in a $66.5 million non-cash charge and a $5.3 million loan repayment.
The company also guided higher for 2019. The company predicts it will bring in between $225 million and $270 million in revenue. Analysts had previously forecasted $219.48 million. Although they declined to predict earnings, they do forecast that adjusted EBITDA will break even. Analysts forecast a 75-cent per share loss for fiscal 2019.
TNDM Stock Has Gone to Extremes
These improving prospects cap off a wild run for TNDM stock over the last five years. TNDM had fallen from a peak of over $300 per share in early 2014 to just over $2 per share by the fall of 2017. In 2016, TNDM stock tanked as United Health (NYSE:UNH) chose Medtronic (NYSE:MDT) insulin products over its own. Mounting losses and cash concerns weighed on the stock over the next two years.
However, the outlook for the company improved last year when the FDA approved a system which combines Tandem’s pump with a glucose monitor made by DexCom (NASDAQ:DXCM). This patent-protected solution helps protect people with Type-1 diabetes from dangerous highs and lows in insulin levels. It also gives Tandem a product monopoly that has caused an unprecedented rise in TNDM stock. Today’s surge takes Tandem from penny-stock levels to over $59 per share in the last year alone.
The TNDM Stock Conundrum
Still, the very factors that have lifted TNDM stock have also made buying the equity difficult. The stock rose by 1,509% in 2018. The post-earnings bump means the increase so far in 2019 comes close to 65%. Without question, the future looks promising. It remains a question of how promising.
Even before the company issued higher guidance, TNDM traded at more than 12 times sales. Moreover, despite the quarterly profit, analysts expect annual losses through 2021.
I think TNDM will become profitable in time. I also believe the stock will continue to rise in the long run. However, in the near-term, this has come too far too fast. I would not discourage those who want TNDM stock from buying in at some point. Still, I would wait for a pullback.
The Bottom Line on TNDM Stock
The factors driving the long-term success of Tandem Diabetes Care stock have placed TNDM stock in an uncertain position for now. TNDM soared higher in morning trading as the company beat revenue and earnings estimate. Higher guidance and changes at the top level also bolstered the stock.
I see TNDM stock as a lucrative long-term opportunity. The monopoly power coming from its latest pump will bring continued revenue growth. Moreover, placing John Sheridan in the CEO position and moving Kim Blickenstaff to the board of directors engenders stability amid the personnel changes.
However, investors need to remember that TNDM stock has grown from penny-stock levels to more than $62 per share over the last year. With an elevated price-to-sales ratio and annual profits still out of reach, a near-term pullback remains a distinct possibility.
The company’s monopoly ensures Tandem will become one of the more essential medical equipment companies. As a result, TNDM stock will trade at higher levels years from now. However, with the near-term picture more uncertain, I do not see now as the time to buy.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.