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Why Medical Developments International Ltd shares have been crushed today

One of the worst performers on the local market on Monday has been the Medical Developments International Ltd (ASX: MVP) share price.

At the time of writing the healthcare company’s shares are down over 17% to $5.92.

What happened?

This morning Medical Developments International released an update to the market warning that sales revenue would be lower than the market expects in FY 2018.

Due to lower device sales in Australia and lower than expected growth rates for devices in the United States and Europe, management expects gross revenue in FY 2018 to be flat or down slightly year on year.

Furthermore, underlying profit is forecast to come in at just $0.3 million due largely to increased investment in infrastructure ahead of the anticipated roll out of its Penthrox product across Europe, Mexico, Canada and the Middle East.

What now?

Management has advised that sales of Penthrox, also known as the green whistle, are expected to increase in FY 2019 when the company starts to benefit from its global expansion.

This could make it worth considering a small purchase of shares on the dip, but only if you’re willing to be patient and have a high risk tolerance. I think the company has a lot of potential, but it really will depend on the success of its international expansion.

If that is a success then I’m sure it will more than live up to its premium valuation, but if it fails then I fear its share price could collapse. Because of this, I intend to sit on the sidelines and wait for signs of improvement before investing.

In the meantime, up and coming healthcare shares such as Volpara Health Technologies Ltd (ASX: VHT) and Zenitas Healthcare Ltd (ASX: ZNT) could be better options for investors.

The shares of Volpara Health Technologies may also trade on a premium valuation like Medical Developments International, but it is delivering sales growth that I believe justifies this premium.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended VOLPARA FPO NZ. The Motley Fool Australia has recommended Zenitas Healthcare Ltd. 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 Scott Phillips.