Why is the Nanosonics share price sinking?

A health professional wearing a stethoscope and scrubs shrugs with uncertainty.

A health professional wearing a stethoscope and scrubs shrugs with uncertainty.The Nanosonics Ltd (ASX: NAN) share price is on course to start the week a sizeable decline

At the time of writing, the infection prevention company’s shares are down over 5% to $4.36.

This is despite the Nanosonics share price storming 5% higher shortly after the open.

Why is the Nanosonics share price sinking?

Investors have been selling down the Nanosonics share price on Monday following the release of an update on its sales model transition in the North America.

According to the release, the company’s transition completed successfully with a significant proportion of all consumables sales now going through the direct channel.

The company also revealed that its North American new installed base increased by 2,650 units in FY 2022. This is an increase of 11% over the prior corresponding period. This took its global installed base to 29,850, which is up 12% year on year.

Positively, during the fourth quarter, Nanosonics’ expanded North American team sold 91% of all new installed base units.

Furthermore, the number of upgrade units sold in the second half in North America was up 32% over the first half. Of the upgrade units sold in the second half, 63% were in the fourth quarter with the Nanosonics team responsible for 86% of those sales.

Management expects this trend to continue, with the significant majority of future capital sales (both new installed base and upgrades) to be made by Nanosonics.

In light of the above, the company expects to report full-year revenue of $120.3 million in FY 2022. This will be a 17% increase on the prior corresponding period and is ahead of the market consensus estimate of ~$115 million.

So why are its shares sinking?

Given the revenue beat, the weakness in the Nanosonics share price today has been a bit of a surprise.

However, it is worth noting that one thing missing from its update was any talk about costs or margins. These have been a major concern for investors and are part of the reason why short sellers have been targeting Nanosonics.

The lack of an update on its profitability could have spooked investors and sent them to the exits this morning.

Investors will have to wait until 23 August for its results to find out how the transition has impacted its margins.

Management commentary

Nanosonics’ CEO Michael Kavanagh said:

The strategic move to a more direct sales model in North America is now substantially complete with the expanded Nanosonics operation fully in place. The collaboration between Nanosonics and GE has resulted in no disruption in the continuity of supply of consumables to customers.

The intended benefits of this change are also coming to fruition with the Nanosonics direct team selling the significant majority of all new installed base during FY22 Q4 as well as driving upgrade adoption in the same period.

While Nanosonics’ direct operations will be responsible for the significant majority of all capital sales and 100% of consumables sales moving forward, the capital reseller agreement with GE Healthcare has been extended for a further 12 months. Our respective teams continue to collaborate to ensure the infection prevention needs of customers and their patients are met.

The post Why is the Nanosonics share price sinking? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Nanosonics Limited. The Motley Fool Australia has positions in and has recommended Nanosonics Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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