Lofty Valuation of CardioNet (BEAT) Spurs Declines

At the forefront of medical technology is CardioNet (BEAT), a maker of wireless monitoring system for the heart disorder arrhythmia. CardioNet’s product, the mobile cardiac outpatient telemetry (MCOT) system measures each heartbeat and sends the data to a monitoring center where it is analyzed to detect major abnormalities. In the event of an unwelcome development, the patient and their doctor is notified.

While the number of Americans with arrhythmia stands at 4.3 million, a much smaller 600,000 actually need to be hospitalized each year. Even though the aging population will increase the number of cases in coming years, the arrhythmia market represents a total market opportunity of just $1.5 billion according to a Cowan analyst. With a market of cap of $570 million, it appears that investors are betting that the company will find new ailments to apply its wireless medical monitoring technology to soon.

CardioNet’s shares took a dive on Monday, falling 7% in over 4 times normal volume as it sliced through both its 50 day and 200 day moving averages – a very bearish sign.  The firm’s valuation, at 83 times trailing earnings, exceeds their estimated growth earnings growth rate in the mid 70 percent range.  It is also worthy to point out that the firm’s receivable balances as a percent of assets have been growing steadily over the past year indicating that the company has not been able to collect payments from insurance companies and Medicare in a timely manner. 

With the latest technical breakdown, the ultra rich valuation, and growing receivables backlog, CardioNet’s shares could have a ways to fall.