Wow, I was not expecting to have to execute on this strategy so soon, but I have closed my Transmedics position. With last quarter having coming in at 114M, and the prior one at 97M, I was expecting upwards of 130M in revenue for this quarter.
The company has never really discussed seasonality before or emphasized this much variance in surgical procedures. The prior Q2 to Q3 earnings had large jump ups in revenue. It just does not make sense to me that people can not get a surgery because of summer vacation schedules. I am still not clear if it is the patients or doctors taking summer vacation; the company did not do a good job explaining the summer vacation theory in my opinion.
Next I am wondering why all the plane maintenance was scheduled for a single quarter which they call a one time cost. That seems like incredibly poor planning by management if it’s going impact 500 bps of margin for this quarter. Surely some of those plane maintenances could have been postponed a quarter? Or are the planes in such poor condition that repairs are essential immediately?
The problem with this company for me is they were traditional sandbaggers on guidance, but always crushed that guide and raised the guide. I would have really liked to see them say we are now processing the backlog of surgeries in Q4, but instead they are saying October is seeming to “normalize”.
I am good with taking responsibility for my decision to add on this one going into earnings. I liked that call because I was not seeing the deterioration in the business and did not share the concerns on TAM. Sometimes the results prove you wrong, and in this case I am pleased to turn my disappointment on these results into an opportunity to add to other positions that I would have liked to increase anyways.
This year I have success adding to positions to when the market was doubting, especially in companies like APP, ALAB, and NVDA which were trading down often for periods of time. I think the case like this with Transmedics where it actually may have been inside information leaking that was causing the selling, it a pretty rare occurrence.
Realistically there was also a possibility that a company with an acquiring eye was looking to acquire the company and was trading to depress the price. For example, Intuitive Surgical is a company with a 182B market cap and 4B+ cash on hand. Part of the reason I was not concerned about TAM was because medical devices company like ISRG do carry this big valuation.
In this case I was completely wrong about my prediction and the outcome. However, I believe the logic used by the board to identify this company in the first place is fundamentally sound.
The price fall of the stock when everything else I had was rising was making me very uncomfortable. As I pointed out in the Knowledgebase, sometimes selling is the most important thing you can do. (It would be good to reread that section).
@SaulR80683 I was curious is you could expand upon this part? It seems like a good strategy that a feeling of being uncomfortable owning the company is a strong warning sign that we either need to trim or sell the position.
Any thoughts about how your intuition led you to believe this was not just normal trading or variance in the market, but possibly a foreboding something was wrong with the TAM, or underlying business? Is it just the confluence of everything is else is up while TMDX was down every day, and this is an extremely rare type of price action? I know you have written in the past that you do not typically base decisions on price, but on the underlying business. I am still kind of surprised you sold in full before earnings, rather than trimming and seeing how the earnings played out.