Stock of the Month: Abiomed, Inc. (ABMD)

Written by Donnie Nguyen

June 22, 2019

Fast Growing Medical Device Company Helps Heart Patients

This month’s stock pick is a medical device company that develops products used by cardiologists to help heart failure patients. The company is called Abiomed (ABMD). Their bread-and-butter product is called Impella. Revenues grew 29.6% from 2018 to 2019 and earnings per share (EPS) more than doubled from $2.54 to $5.77 during that same time.

I first spotted this company last year on the IBD 50. Back then the stock was trading at $449.75 a share and pumping hard. Its stock has had a cardiac arrest since then, closing at $256.04 on Friday – a 43% drop. Is now a good time to pick up shares? I think so. Read on to find out why.

Will the Stock Recover from its Cardiac Arrest?

One reason why the stock has dropped so much was that the FDA was investigating the accuracy of their premarket clinical studies that showed 73.3% survival rates. Other results showed survival rates at only 28.6%.

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Last month, the FDA concluded that had patients been selected properly, then the results would have been 64.3%, which was similar to the premarket clinical studies.

Based on our current analysis, the FDA believes that when the device is used for the currently approved indication in appropriately selected patients the benefits of the Impella RP system continue to outweigh the risks.

Source: FDA.gov

FDA Gives Abiomed a Clean Bill of Health

Now that the FDA has confirmed Abiomed’s safety and efficacy, it’s just a matter of time before the stock reaches new highs. Is now a good time to buy? No one has a crystal ball and can tell where a stock will be 5 years from now. As Warren Buffett says, all we can do is buy great companies at reasonable prices, and preferably at a great discount. I think this is one of those times. Check out this stock chart of ABMD.

Stats (as of 6/21/2019)

  • Market Cap: 11.6B
  • P/E Ratio: 44.7
  • Closing Price: $260.33
  • Revenue Growth (yoy): 29.6%
  • Net Income Growth (yoy): 230%
  • Diluted EPS Growth (yoy): 229%
  • Debt/Equity: 11.3%
  • Net Margin: 33.7%

CHART ACTION

After peaking at $459.75 in October 2018, ABMD’s stock price has come down significantly. It is sitting right above its 50% retracement based on a starting point of $22 from 2014. I think this is a reasonable price at which to start a position. More patient investors looking to get in cheaper might try to wait and see if the stock sinks lower to its 200-week moving average, which would be right around $200.

risks

As with many growth stocks, the primary risks I’m concerned with are slowing growth and increased competition. Abiomed has established itself as a market leader and has a good relationship with the FDA, so I’m not too concerned with these risks at this time.

Should I Buy?

Abiomed could be a great addition to a portfolio that needs exposure to:

  • Health Care
  • Growth Stocks

Be sure to do your own research and determine for yourself if Abiomed is a good stock for your portfolio.

How Much Should I Buy?

Here are some portfolio guidelines we Wolves try to live by:

  • Thou shalt not hold more than 35% in any one particular sector
  • Thou shalt not invest more than 10% of principal into 1 individual stock
  • Thou shalt make small purchases. The general rule of thumb is to spend no more than 2% of your portfolio on a single purchase and build up your position over time.

The Bottom Line

Abiomed is a health care medical device company. Its Impella product is a market leading device that cardiologists use to help heart failure patients. Its stock is heavily discounted compared to its peak in 2018 because of a negative FDA announcement. That announcement has now been cleared. Now might be a good time to start a position.

DISCLOSURE

I/we don’t own shares of stock mentioned in this article, but might purchase ABMD in the next few days.

Except for Wolves of Investing, I/we are not receiving any compensation from and do not have any business dealings with any companies discussed in this article.

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Donnie Nguyen

Donnie Nguyen

Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.

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