Universal Biosensors (UBI) enjoyed its best one-day gain in five years as sales of its glucose test strips jumped to a record in the March quarter.
We highlighted the probability of this pleasant surprise in January when I reiterated my recommendation on the stock, but this wasn’t enough to win over sceptics who sold the stock down to a record low of 29 cents on Monday.
Embattled shareholders will be pleased to see shares in the medical equipment developer surge 24.6%, or 8 cents, to a near one-month high of 40.5 cents after management received $1.2 million in quarterly service fees from its distribution partner, LifeScan, on sales of test strips used in LifeScan’s blood glucose tester.
The result is 44% higher than the same time last year and 25% above the December quarter. LifeScan’s tester is based on technology developed by Universal Biosensors.
Shares in Universal Biosensors were primed to pop on any good news as the stock is arguably one of the most oversold in the sector for a number of reasons.
Firstly, a recall of another LifeScan device hurt sentiment and sales of the Universal Biosensors’ testing unit, and it took a while for sales of the unit (and associated test strips) to rebound.
Then LifeScan, which is a Johnson & Johnson subsidiary, decided to manufacture the test strips themselves at the end of 2013. This saw a sharp drop in Universal Biosensors’ revenue, although management insisted that this was a positive outcome for its profit margin given that manufacturing is a low margin business and Universal Biosensors receives US1 cent a strip from LifeScan regardless of who manufactures the strip.
Investors might have been more willing to overlook these developments if the product launch of Universal Biosensors’ new coagulation testing device was not unexpectedly delayed due to insufficient clinical data needed to satisfy United States regulators.
The coagulation tester, which will be distributed by Siemens, is now expected to hit the shelves before the end of the September quarter this year – nearly a year behind schedule.
It is always a risky to call a bottom for any stock, but I am expecting Universal Biosensors to stay comfortably above its record low from here. The rise in the quarterly service fee and management’s reiteration of the launch deadline for its coagulation device should see some confidence return to the stock.