The tech- and pharma-centric Nasdaq index has certainly endured volatility recently, but there’s no denying it’s experienced a stunning overall rally this year. While it has dropped 6.1% over the last month to the lowest levels since March, it’s still up a strong 15% since the last close of 2018 and up 16.4% from the Dec. 24 bottom. In terms of news headlines, heavyweight index components like Apple Inc. (AAPL), Amazon.com Inc. (AMZN), and Microsoft Corp. (MSFT) have been at the forefront of the charge, with each respectively climbing 13.9%, 20.9%, and 24.2% so far this year.
But the index’s best performer is a much smaller company with a modest $219 million market cap. The firm is Conformis Inc. (CFMS), which has posted a monstrous 802.2% gain this year despite having close to zero brand recognition compared to the aforementioned tech titans. But that under-the-radar performance makes it all the more important to dive into as the Nasdaq remains in a jittery state these days.
Here’s a recap of Conformis’ stunning 2019 rally – and what investors should expect from this little-known gainer moving forward this year…
The Company
For investors who aren’t familiar, Conformis is a medical technology company that develops, manufactures, and sells joint replacement implants primarily for hips and knees. The company has several lines of customizable replacement products, including the:
- iTotal CR, a product for retaining the cruciate ligaments of the knee, including the anterior cruciate ligament (ACL)
- iTotal PS, a product for substituting the posterior cruciate ligament (PCL)
- iDuo, a customized bicompartmental knee replacement system
- iUni, a customized unicompartmental knee replacement product to treat the medial or lateral compartment of the knee
- iJigs, a customized single-use patient-specific instrumentation.
- ConforMIS Hip System, a hip replacement product
The Rally
The Conformis rally has largely been thanks to a series of strong earnings reports so far in 2019 – as well as bullish sentiment surrounding the firm’s customizable hip transplant that may be considered somewhat overblown.
After a relatively flat January, CFMS’ gains really kicked into high gear with a whopping 89.2% rise in February thanks to a strong Q4 2018 earnings report released on Feb. 6. The company raked in revenue of $22 million during the October-December period, which marked a 6% increase from Q4 2017. Even more impressive was product revenue in the U.S., which climbed 10% year-over-year. Despite the revenue growth, the then-recent SEC filings showed that institutional ownership of the stock declined by 9.31% through Feb. 28. Low institutional investment can often indicate that a stock is undervalued, as those institutional investors are prone to focusing on their own analyst ratings more so than fundamentals. However, Conformis continued to rocket higher in March when shares climbed an incredible 134% from $1.23 to $2.88 by the end of the month, making for the best close since Nov. 27, 2017 when they settled at $3.02 each.
And while the stock failed to achieve a monthly gain in April, May has been a banner month so far. CFMS is currently up a sizable 30.2% so far this month, going from $2.48 on April 30 to $3.23 as of the most recent close on May 24. The majority of this month’s momentum started with the company’s Q1 earnings report, which – despite running at a loss – proved Conformis is slowly but surely moving toward profitability. The firm lost $0.12 per share last quarter, in line with analyst estimates yet an improvement from the $0.22 lost in the same quarter from 2018. Additionally, the quarterly revenue of $20.64 million surpassed expectations by 2.64% and grew 5% year-over-year from $19.66 million.
Despite the overwhelming bullish sentiment around the stock, analysts remain weary as to whether or not the gains hold water. Financial outlets hold skeptical outlooks on the company’s financials, even maintaining that the stock’s triple-digit return this year is nothing but frenzy. In an article from early April, analysts from White Diamond Research noted that Conformis’ appreciation in 2019 “is not from any positive fundamental developments, but from hype and speculation.” Those analysts additionally said the fact that the company’s flagship hip implant has been approved since 2017 means it’s “too early in clinical evaluation to justify a rally from it.”
Looking Ahead
It’s clear the CFMS rally is purely earnings-driven. When company’s report numbers that mark growth or beat estimates, investors pour millions into the stock in good faith, hoping that financial strength maintains in the long term. But as a cheaper stock, Conformis is difficult to judge at this point. Investors should maintain a wait-and-see approach, as sales growth from the new hip implant make their way into the firm’s report within the next few quarters.