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Why the Compumedics Limited share price fell 19% today

It certainly hasn’t been a great end to the week for the Compumedics Limited (ASX: CMP) share price.

In afternoon trade the medical device company’s shares are down 19% to 51 cents.

Why have its shares dropped?

This morning Compumedics provided the market with an update on its performance for the 12 months ending June 30 2017.

As you might have guessed, it was a reasonably disappointing update.

According to the release, due to restructuring activities in its core capital equipment business, the company expects to report sales of approximately $33 million in FY 2017.

This was much lower than previously expected and a disappointing 12% drop on the $37.5 million sales it generated a year earlier.

These restructuring activities were largely focused on its management and sales force in its U.S. business. Whilst these activities are now complete, the transition phase has taken longer than planned, resulting in weaker sales for its sleep and neurological diagnostic businesses.

As a result, earnings before interest, tax, depreciation, and amortisation is expected to be between $2.1 million and $3.6 million, before one-off costs. A year earlier the company posted EBITDA of $5 million.

Should you buy the dip?

I think Compumedics is an exciting healthcare company with strong growth potential.

But as I said last month, I plan to err on the side of caution with this one and hold off an investment for the time being.

I feel it is fair to say that FY 2017 has been a big disappointment. And whilst I trust management has rectified the situation, it may still take some time before this shows in its results.

In light of this, I continue to believe investors would be better off looking at other medical device companies like Nanosonics Ltd. (ASX: NAN) or ResMed Inc. (CHESS) (ASX: RMD).

Alternatively, these hot growth stocks could be even better options for investors. I'm tipping them to smash the market in FY 2018.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Nanosonics Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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