Genoptix (GXDX) "Trading Transparency"

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

First of all I would like to apologize for the paucity of posts on the blog the last week or two.  I would encourage you all to utilize my Covestor Page to find out how my actual holdings are doing when I am not blogging.  And I shall try to get back 'in the saddle' once again, and catch all of you up on my latest thoughts and observations.

I have been making some adjustments to my trading strategy without really changing the mechanics underlying my approach.  What I am trying to say is that I have chosen to sell some positions that appear to be in the wrong 'groups' or 'industries' and switch to other companies that appear to be acting 'healthier'.  

Concerned that my Morningstar (MORN) stock was acting 'sickly', I chose to switch out of this pseudo-financial stock and try something else for my holding.  Looking through the list of top percentage gainers on the NASDAQ, I came across Genoptix (GXDX) that appeared to fit the bill. 

I went ahead and purchased 161 shares of GXDX on August 14, 2008, (a peculiar number but divisible by 7--my first partial sale amount) at $38.328/share.  However, GXDX immediately started to trade weakly, and not wanting to move from one weak stock to another, I went ahead and sold my 161 shares the same day (!) at $37.028.  Looking at the list of top % gainers on the NYSE that afternoon, I found Estee Lauder (EL) and purchased 140 shares at $49.87---but that is the subject of another blog entry.

Genoptix (GXDX) continued to trade poorly and actually closed at $33.53, down $1.66 or (4.72)% on the day yesterday (8/21/08).  However, I like the numbers on this stock, I do believe it deserves a place on the blog for continued monitoring.  With my own sale of the stock, and the technical weakness, the best I can do is

GENOPTIX (GXDX) IS RATED A HOLD

But let's take a closer look at this stock.  First of all,

What exactly does the company do?

According to the Yahoo "Profile" on Genoptix, the company

"...provides specialized laboratory service that focus on delivering customized and collaborative diagnostic services. Its services include COMPASS service offering, in which the company's hematopathologists determine the appropriate diagnostic tests to be performed, and then integrates patient history and all previous and current test results into a comprehensive diagnostic report; and CHART service offering, in which the hematologists and oncologists receives a detailed assessment of a patient's disease progression over time. The company also offers multiple diagnostic services, such as professional interpretation by its hematopathologists."

How did they do in the latest quarter?

On July 31, 2008, Genoptix (GXDX) reported 2nd quarter 2008 results.  Revenues for the quarter came in at $27.8 million, up from $13.9 million the prior year.  GAAP net income for the quarter was $5.6 million, compared to $3.8 million the prior year.  This worked out to $.32/share vs. the $.03/share reported the prior year.

The company also raised guidance with Medicare reimbursement rates confirmed, to $105 to $108 million in revenue for the year, up from prior guidance of $90 to $95 million in revenue.  Net income figures were also raised from $15 to $17 million to approximately $20 million for the year.

Seeking Alpha has the Conference Call Transcript on this quarterly result for your further review.

What about Longer-Term Results?

Reviewing the Morningstar.com "5-Yr Restated" financials, we can see that this company has grown rapidly from its $200,000 in revenue in 2003 to $59.3 million in 2007 and $84.9 million in the trailing twelve months (TTM).

Earnings have improved from a $(184.35)/share loss (!) in 2003 to a loss of $(33.74)/share in 2006, turning to a profit of $.78/share in 2007 and $1.35/share in the TTM.

Morningstar shows 4 million shares in 2007.  According to Yahoo, there are currently 16.5 million shares outstanding--and also according to the latest quarterly report, there are 17.5 million shares when the full "dilution" is considered.

Free cash flow has improved recently from $(10) million in 2005, to $(4) million in 2006, $12 million in 2007 and $18 million in the TTM.

The Balance Sheet on Morningstar.com appears solid with $51.0 million in cash and $60 million in other current assets.  Compared to the $10.9 million in current liabilities, this yields a current ratio of 10.2.  The company has virtually no long-term debt with $300,000 in long-term liabilities reported.

What about some Valuation Numbers?

Reviewing the numbers from Yahoo "Key Statistics" on Genoptix (GXDX), we can see that this is a small cap stock with a market capitalization of only $554.28 million.  The trailing p/e is a moderately rich 30.18, with a forward p/e (fye 31-Dec-09) of 30.21.  However, the '5 yr expected' growth is substantial enough that the PEG is estimated at 0.64.

Reviewing the Fidelity.com eresearch website, we can see that the stock is still rather richly valued with a Price/Sales (TTM) of 6.38, compared to the industry average of 0.89. Fidelity does suggest that the company is quite profitable, however, with a Return on Equity (TTM) of 24.76% compared to the industry average of 18.77%.

Returning to Yahoo, we can see that there are 16.53 million shares outstanding and currently there are 994,320 shares out short (as of July 28, 2008), representing 7.2 days of average volume (the short ratio).  This exceeds my own '3 day rule' making the short interest significant from my perspective.  No dividends are paid, and no stock splits are reported on Yahoo.

What does the chart look like?

When we examine the 'point & figure' chart on Genoptix (GXDX) from StockCharts.com, we see that the chart is relatively optimistic yet showing some signs of fairly significant volatility. Since coming public in October 2007, the stock has traded from $24 to $37 in January, 2008, only to dip to $21 and start its move higher once again.  The stock recently peaked at $39 in August, 2008, but has now dipped back to $33.  Overall, the chart appears to be intact with the stock trading through resistance and above support levels.

Summary:  What do I think?

Overall, I still like this stock.  It is a bit small and very volatile trader, but the prospects appear to be good with the company reporting solid earnings and revenue results and raising guidance on both.  

My own short-term ownership of this stock was limited likely to my own poor timing of my purchase in a stock that was a bit 'over-extended' technically.  Valuation is a bit rich but the stock is just currently turning profitable and this is to be expected.

Thanks so much for stopping by and visiting my blog.  If you have any comments or questions, please feel to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Covestor Page, where you can review my continuously updated trading portfolio results and performance, my SocialPicks page which monitors my stock picks from early 2007 through current posts, and my Podcast Page where you can listen to me discuss some of my picks from this blog.

Wishing you all a wonderful Friday and weekend!

Yours in investing,

 

Bob