Bull Of The Day: Penumbra (PEN)

Penumbra (PEN – Free Report) is a $5 billion medical device company focused on interventional products for neurovascular and peripheral vascular diseases.

The company leverages its expertise in catheter-based technology to develop access devices for treating strokes, aneurysms, deep vein thrombosis, pulmonary embolism, and other patient events caused by blood clots.

Based in Alameda, CA, Penumbra sells its products to hospitals and clinics primarily through its direct sales organization in the United States, most of Europe, Canada and Australia, and through distributors in select international markets.

On August 7, the company reported Q2 earnings and delivered a 400% EPS beat as well as raising sales guidance with total 2018 revenue to be in the range of $420 million to $425 million, vs. the previous range of $410 million to $415 million.

You would not have guessed those kind of results looking at the stock reaction the next day when shares plunged 16% from $148 to $124 on 3 times the normal volume.

But it probably had something to do with investors getting nervous that maybe the growth estimates and guidance weren’t really good enough to justify the steep valuation. 

Growth Catches Up with the Valuation

The company made a strong swing to sustainable profitability this year on the back of projected 27.5% sales growth from last year’s $333 million to over $425 million in revenue.

The profit surge — from last year’s loss of 1-cent to a current estimate of +$0.34 — caught analysts way off guard. We know this because in the last two quarters, the company delivered consecutive 400% EPS beats.

And that’s why the stock is a Zacks #1 Rank as analysts scrambled to raise full-year 2018 EPS estimates 70%, since the early August quarterly report, from $0.20 to $0.34.

Additionally, 2019 top-line estimates are currently looking for over 20% growth to a record $500 million, giving Penumbra a 10X price-to-sales ratio.

This sales advance is expected to translate to the bottom line next year with 72% EPS growth to $0.59. At $150 per share, that would put the forward P/E multiple under 300X.

That’s still rich, but characteristic of med-tech companies with key patents and strong sales growth.

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