Why Exact Sciences Is Tumbling Today

What happened

After sharing preliminary financial results with investors at the annual J.P Morgan Healthcare Conference, shares of Exact Sciences (NASDAQ: EXAS), a diagnostics company focused on cancer, fell 11% in early-morning trading on Monday.

So what

Here's an overview of the key numbers from the company's presentation:

• Fourth-quarter 2017 revenue is expected to land between $86.9 million and $87.9 million. This represents growth of 148% at the midpoint and is far ahead of the $79.1 million that Wall Street was expecting.

• Full-year 2017 revenue is expected to land between $265.5 million and $266.5 million. That represents growth of 168% at the midpoint and easily surpasses the company's guidance range of $254 million to $257 million.

• Approximately 571,000 Cologuard tests were completed during 2017. This represents growth of 124% year over year. It also came in at the high end of management's guidance range of 568,000 to 572,000 tests.

• 11,000 new providers prescribed a Cologuard test during the fourth quarter. That brings the total number of unique providers who have ordered the test since its launch to 102,000.

Overall, the numbers appear to be amazing. So why are shares falling on this news? My best guess is that traders were expecting the company to produce blowout numbers on total testing volume. Since the actual results landed within the guidance range, it is possible that they are being viewed as a disappointment.

This is what can happen when Wall Street's expectations get out of hand.

Business man looking stressed at computer with cups of coffee everywhere

Image source: Getty Images.

Now what

Exact Sciences stock went on a truly monster run in 2017. While that was great news for investors, the huge move pumped up the company's valuation so high that it traded north of 30 times trailing sales prior to today's release. That's an insanely rich valuation, so it is understandable why Wall Street was expecting the company to produce a flawless report. Since the actual numbers were "only" great, it isn't that surprising to see that shares pulled back in response.

Should investors look upon this dip as a great time to get in? That's hard to say. One the one hand, Exact Sciences is clearly executing well against its commercial strategy and still has a huge runway for growth ahead of it. On the other hand, shares are still richly valued, even after accounting for today's double-digit dip.

My view is that this stock can still be bought today as long as investors are willing to own it with a long-term mindset. However, the sky-high valuation is likely going to amp up the stock's volatility, so risk-averse investors should probably keep away.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.