The Nanosonics Ltd (ASX: NAN) share price has been out of form in recent weeks.
Since peaking at $6.87 in late August, the infection control specialist's shares have tumbled 14% lower to $5.89.
Why is the Nanosonics share price down 14% in four weeks?
Investors have been hitting the sell button since the release of its full year results for FY 2020.
However, rather than selling shares because of the pandemic's impact on its performance, I suspect the real driver of this decline was yet another delay with the company's plans to launch new products.
Management warned: "Commercialisation of the new technology is no longer expected to be in FY21 but will likely be in FY22, with the ultimate launch timing continuing to be dependent on the necessary technical milestones being met as well as the timing of individual market regulatory approvals."
This was very disappointing, especially given how many times the company has now failed to deliver on its new product promises.
Is this a buying opportunity?
While Nanosonics certainly isn't a bargain buy, I still believe it could be a good long term investment.
Though, given the tough trading conditions with COVID-19 and the further delay in its new product launches, I wouldn't be expecting too much from its shares over the next 12 months.
Sharing a similar view is Goldman Sachs. This morning its analysts put a neutral rating and $5.50 price target on the company's shares.
It commented: "We believe NAN has successfully transitioned from a disruptive, niche technology provider to a proven leader in its field. However, as a result, there are many facets of execution which this management team must now deliver on to justify the current premium valuation. In particular, we see risk around the timing/impact of new product(s), penetration trajectory, and capital replacement cycle."
The broker also spoke about its premium valuation and the aforementioned product pipeline.
"The stock trades on 72x NTM EV/EBITDA for 26% growth (vs. sector on 22x for 10%). We like the base business for what it is, and, purely on a DCF basis, we believe it is worth A$2.0/sh. As such, current valuation implies the market is allocating A$4.0/sh, i.e. 66% of total, to future product(s) which were first promised in FY17 but have so far shown negligible progress (the latest expectation is FY22)."
"We note that many ASX HC stocks do not stack up well purely on DCF, but we are not aware of any other example in global healthcare where the market has placed such a high value on a pipeline product with so much uncertainty. That is not to say that we believe it is overvalued, we just don't have the data to assess either way, and after many delays, we would advocate prudence," it concluded.
Food for thought.
