Why are Medical Developments shares crashing 11% lower today?

The Medical Developments International Ltd (ASX: MVP) share price is crashing lower on a day of sharp falls across most ASX sectors.

Phil Harpur

Phil Harpur has been contributing to Motley Fool Australia as a Freelance Writer since late 2019. Phil has spent the last 25 years working as a Senior Technology Analyst for some of the leading global technology research firms. Over the years, his market insights have been quoted in publications such as the AFR, SMH and the Australian, and he has appeared on business TV programs including Bloomberg, CNBC, Fox Business and the ABC. Phil is passionate about the share market and investing. He has post-graduate qualifications in Applied Finance and Investment from the Securities Institute of Australia. In his spare time, Phil likes to chill out listening to his favourite jazz artist or hanging out at the beach.

Published February 24, 2020 3:59 pm AEDT

The Medical Developments International Ltd (ASX: MVP) share price is crashing lower on a day which has seen a sharp fall across most of the ASX's major sectors.

At the time of writing, the S&P/ASX 200 Index (INDEXASX: XJO) is down 2.14% while Medical Developments shares are trading 10.9% lower at $9.58.

So, what appears to be behind this fall?

What does Medical Developments do?

Medical Developments is an Australia-based healthcare company that offers a range of open and closed circuit anaesthetic machines to the veterinary market.

In addition to veterinary equipment, the company also has a range of products in the areas of pain management, asthma and resuscitation.

What's behind today's sharp fall?

There doesn't appear to be any major company announcement or activity that has triggered today's fall.

In my view, today's fall is most likely a market correction after Medical Developments' very strong run on the ASX since September last year. This correction appears to have begun last Friday when the Medical Developments share price fell by 4.5%.

During the period from 10 September 2019 to the close of trade last Thursday, Medical Developments shares had gone up by a massive 156%.

I don't think the company's fundamentals are strong enough to continue to support such a continued high growth rate. Therefore, a market correction, triggered by the ASX's wider falls today, is not surprising.

Looking back further over the past two years, the Medical Developments share price had fallen back from the period of January 2018 until January 2019, further supporting the case for a market correction.

Strong recent financials

Medical Developments released its 1H20 results to the market last Wednesday, reporting an 82% increase in net profit after tax to $240,000. This was up from the $132,000 that it recorded in 1H19.

Meanwhile, gross revenue for the period came in at $11.2 million, up 15% from $9.8 million in the prior corresponding period. Gross margins remained strong and largely consistent with the prior year at 67%, while earnings before interest, tax, depreciation and amortisation (EBITDA) was up 21% to $1.5 million.

Foolish takeway

Today's share price falls appears to be a market correction to a strong recent run for Medical Developments on the ASX since last September.

I believe the underlying fundamentals of Medical Developments remain strong, and that the company is positioned for strong growth over the next year or two.

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