The stock market saw some bumps and dips in July, but the major market indexes still landed within a few percent of the month's starting price.
But a few names on the Nasdaq stock exchange fell more than 35% last month. Are they falling knives, best left untouched -- or could they be solid buys at a lower price level?
Nasdaq Stock | Industry | July Return | 52-Week Return |
|---|---|---|---|
DexCom (NASDAQ: DXCM) | Medical devices | (40.2%) | (37.5%) |
CrowdStrike (NASDAQ: CRWD) | Cybersecurity | (39.5%) | 53.9% |
Helen of Troy (NASDAQ: HELE) | Housewares, health, and beauty products | (36.2%) | (59.6%) |
Data source: YCharts. 52-week return is through Aug. 6.
DexCom: Poised to perform
Let's start with the biggest Nasdaq dip in July. Medical devices developer DexCom reported second-quarter results on July 25, and many investors were quick to slam their "sell" buttons.
The actual results weren't bad. DexCom's sales rose 15% year over year to land at $1.0 billion, overcoming slow international growth with a 22% jump in North American revenue. The company is finding expanded use cases for its blood glucose monitoring systems beyond the obvious population of type 1 diabetes patients. DexCom's earnings exceeded Wall Street's consensus estimates by 10%, but the top line fell just short of the average analyst target.
But the main reason for the dramatic sell-off that followed is found in management's forward-looking comments. The company lowered its full-year revenue growth target from a roughly 19% year-over-year boost to a 12% gain. Profit margins should hold steady, but investors found the slower top-line growth displeasing.
The company is going through some radical changes. DexCom recently updated its sales force and marketing process while also seeking regulatory approvals and developing new devices. The expected revenue slowdown in the second half of 2024 is the result of a miscalculated rebate program, which added plenty of new DexCom customers but not a whole lot of revenue.
"We expect the impact of this rebate eligibility dynamic will reach its peak in the third quarter," DexCom CEO Kevin Sayer said on the earnings call.
As a result, the fast-growing innovator seems to be dealing with some short-term mistakes while setting itself up for continued success in the long run. At the same time, DexCom's stock looks quite affordable at 8 times trailing sales and 47 times free cash flow, both around five-year lows. In my eyes, DexCom looks like a solid buy at these modest prices.
Helen of Troy: Too risky, even at this attractive price
Next up, I'm looking at the company behind familiar consumer goods names such as Hydro Flask, OXO kitchen utensils, and Good Grips cooking tools.
Like DexCom, Helen of Troy also plunged after a disappointing earnings report. That's where the similarities end, broadly speaking.
In the first quarter of its fiscal 2025, Helen of Troy saw revenue fall 12% year over year to $417 million. Adjusted earnings plunged from $1.94 to $0.99 per diluted share. Your average analyst had expected earnings of approximately $1.59 per share on sales near $446 million. That's not a close call.
Furthermore, CEO Noel Geoffroy said that some of the challenges causing this disastrous report were only getting worse heading into the second quarter.
"We now see fiscal 2025 as a time to reset and revitalize our business," Geoffroy said on the earnings call. "Consumers are even more financially stretched and are even further prioritizing essentials over discretionary items."
In other words, consumers are spending more on basic essentials and less on high-end brands and everyday luxuries in this economy. As a producer of top-shelf brands, Helen of Troy is exposed to weaker sales as this secular trend plays out and retail partners cut back their inventory levels. At the same time, lower-priced brands are putting up a stronger competitive fight.
So Helen of Troy is adjusting to the realities of a difficult economy. The stock trades near 10-year lows nowadays, with valuation ratios often reserved for companies on the brink of bankruptcy.
The bulls will call Helen of Troy a turnaround story, but I'm not sure the company has what it takes to get back on its feet. Your mileage may vary, but I'll gladly stay away from this risky idea, even at this low buy-in price.
CrowdStrike: Can the company regain customer confidence?
And that brings me to network and data security giant CrowdStrike. This crash had nothing to do with earnings reports and financial forecasts, but rather a painful technical error.
On the morning of July 19, more than 8 million Windows computers crashed with a "blue screen of death." A software update from CrowdStrike turned out to cause the outage.
Getting computers back online involved a fairly simple driver update and reboot, but the sheer scale of this disaster led to thousands of CrowdStrike customers losing hefty amounts of business. Airlines grounded their flights. Banks couldn't process transactions. Manufacturing plants didn't start their processes that day.
According to a Georgetown University analysis of the incident, the economic fallout "will likely be measured in billions of dollars." The event also highlights the fragile nature of a globally connected computer network. This time, it was an honest mistake in an official software update that should have passed stricter testing before automatically installing on millions of computers. Next time, it could be a malicious hack by a criminal or by a foreign government with heinous intentions.
That brings me back to the potential upsides of CrowdStrike's costly error. The company immediately tightened its software update procedures. Thousands of companies still rely on its Falcon platform to bat down incoming cyber-attacks, and the crashes may have served as a reminder of how valuable the systems running CrowdStrike software can be.
Finally, CrowdStrike's stock may have been overdue for a price correction. Even now, weeks after the outage-inspired stock crash, the stock still looks pricey around 17 times sales and 56 times free cash flow. The rich valuation suggests that CrowdStrike isn't going away, despite this agonizing and expensive mistake.
CrowdStrike's lofty valuation may not be your cup of tea, and I can't guarantee that the bullish ideas mentioned above can outweigh the immediate hit to the company's reputation, and there are other security experts out there. But if you were looking for a lower price before adding this tremendous growth stock to your portfolio, here's your chance.
Should you invest $1,000 in DexCom right now?
Before you buy stock in DexCom, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and DexCom wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $638,800!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 6, 2024
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends DexCom and Nasdaq. The Motley Fool has a disclosure policy.
Is It Time to Buy July's Worst-Performing Nasdaq Stocks? was originally published by The Motley Fool