Shares of Somnomed Limited (ASX: SOM) have come under fire from investors recently after the medical device maker downgraded its full-year earnings guidance by a massive 50%. But with the stock now trading at $2.41 – down nearly 25% from its 52-week high – now could actually be a great time for investors to buy.
Somnomed specialises in continuous open airway therapy (COAT) for the treatment of various sleep-related breathing disorders, including obstructive sleep apnea. Its products are somewhat cheaper and less invasive than those offered by other big-name companies such as ResMed Inc. (CHESS) (ASX: RMD) and Fisher & Paykel Healthcare Corp Ltd (ASX: FPH), and are winning a lot of new customers as a result.
Disappointingly, Somnomed recently admitted that it had been a little optimistic on its estimated volumes, downgrading guidance from 55,000 SomnoDent units to 50,000 units. This is expected to see earnings before interest, tax, depreciation and amortisation (EBITDA) come in at just $1 million, compared to the $2 million previously forecast by management.
Despite this short-term blunder, the future still looks bright for this small company. The 50,000 units Somnomed is now targeting still represents a 17% increase on the prior year, while it confirmed it still expects volumes to increase another 20% to 25% over the next year. Provided that it can achieve that goal, volume growth of that calibre would be a promising sign for the company and its shareholders.
Given its size, Somnomed has the potential to grow at a far more rapid pace than either of its two larger rivals and could thus be an excellent way for investors to gain exposure to the sector. Although it is by no means a risk-free investment, it appears to be a reasonable buy at its current price tag of just $2.41 per share.
