EchoIQ Ltd (ASX: EIQ) shares crashed 48% on Wednesday morning and closed at 64 cents.

The medical technology company told the market that the United States Food and Drug Administration had issued a Not Substantially Equivalent determination for EchoSolv HF.

EchoSolv HF is its heart failure decision support software.

Company shares traded as low as 47 cents during the session.

More than 53 million changed hands, against a one-month average of under 2.9 million.

Why EIQ shares fell so hard

The company applied through the 510(k) pathway.

That route requires a company to show its device is substantially equivalent to one already on the market.

A Not Substantially Equivalent determination means the FDA did not accept that argument.

Morgans had made EIQ’s dependence on getting this approval explicit only a week earlier.

The broker retained a speculative buy rating and a $1.85 price target at the time.

The market is still waiting on an FDA decision for its Heart Failure (HF) application, which remains the key near-term catalyst and value inflection driver. Despite delays, we maintain a positive view on approval. Speculative Buy retained and A$1.85 p/s target price unchanged.

What the company has actually said

Echo IQ has not abandoned the application.

Upon receipt of the FDA’s determination, Echo IQ, together with its US regulatory and legal advisors, its study partners, and independent statistical experts, has commenced a detailed review of the regulatory matters raised. The Company believes there is a pathway forward for clearance under the 510(k) route and intends to engage with the FDA to further clarify the matters identified in the determination and assess all administrative and regulatory options available to Echo IQ.

Managing director Dustin Haines was measured about the setback.

Our immediate priority is to understand the matters raised in full and determine the most efficient pathway forward. We remain confident in the underlying technology, the clinical rationale for EchoSolv HF and the significant opportunity to improve the identification of patients at risk of heart failure.

Two things soften the blow.

The company holds more than $105 million in cash, so it is unlikely to run out of cash any time soon.

What’s more, the company possesses a separate EchoSolv AS platform that detects aortic stenosis.

This product is already FDA-cleared, and its commercialisation is unaffected.

What this does to the Pro Medicus deal

Here is the detail that matters most.

In June, Pro Medicus Ltd (ASX: PME) agreed to invest an initial $10 million through secured convertible notes.

It also took the right to subscribe for a further $10 million once EchoSolv HF was cleared.

As such, that second tranche is now tied to an approval that has just been refused.

However, the reseller arrangement still stands.

This agreement gives Echo IQ access to Pro Medicus customers across US health systems, and it applies to the cleared product.

Where EIQ shares go from here

Context is worth keeping in mind.

Even after halving, EIQ shares are up 124% over twelve months. They remain 392% higher for the calendar year.

Investors who bought over a year ago would still be very happy.

Foolish takeaway for EchoIQ shares

The pathway forward is a regulatory one.

EchoIQ as a company now operates somewhere between a cleared aortic stenosis business and a heart failure product with no approval date.

Before investigating further, I would want to see the company’s opinion of the FDA’s specific objections.

The post EchoIQ shares just crashed 48%. What happens now? appeared first on The Motley Fool Australia.

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

Life360 Inc (ASX: 360) shares are trading about 60% below where brokers think they should be, and the difference has a very specific cause.

The stock closed Wednesday at $19.64, whereas the average analyst target price is $31.72. Every broker covering the company rates it a buy or strong buy.

Why Life360 shares fell so far

The de-rating started well before the latest result.

The shares peaked at $55.44 in early October and then fell to an annual low of $17.91 by mid-April.

Most of that was sector-wide, as investors sold high-multiple technology names on fears that artificial intelligence could erode software business models.

ASX tech stocks then rallied through June and early August on a strong first quarter.

The second quarter update in mid-August ended that recovery, and the shares shed 30% of their value in the weeks that followed.

What the second quarter showed

Despite this pullback, second quarter numbers were at a record high.

Total revenue rose 38% year-on-year to US$159.0 million, and adjusted EBITDA increased 53% to US$31.1 million.

Annualised monthly revenue grew 29% to US$537.2 million and paying circles jumped 27% to 3.2 million.

Advertising revenue reached a record US$22 million, up 315%, while operating cash flow grew 79% to US$23.8 million.

Global monthly active users rose 4.6 million in the quarter to approximately 102.4 million.

Chief executive Lauren Antonoff framed the quarter around the user gowth milestone.

This quarter, Life360 crossed 100 million monthly active users—proof of the trust millions of families place in us to stay connected, coordinated, and safe. Disciplined execution drove strong Paying Circle growth and put MAU back on the growth trajectory we outlined last quarter.

However, operating expenses also rose 43% to US$127 million, largely on growth and integration costs from the Nativo acquisition.

The two details that sank the result

The first is guidance.

Life360 left FY26 revenue guidance at US$650 million to US$685 million and adjusted EBITDA at US$130 million to US$140 million.

Shareholders had grown used to upgrades, but received a reiteration instead.

The second is the quality of the earnings beat.

Bell Potter noted that paying circles grew by 185,000 against its 155,000 forecast and consensus of 136,000, and that adjusted EBITDA comfortably beat its US$25.7 million estimate.

Roughly US$4 million of that beat, however, came from a tariff refund.

Underlying adjusted EBITDA was therefore closer to US$27 million.

What brokers say Life360 shares are worth

Bell Potter kept its buy rating and trimmed its target slightly.

The net impact on our target price is a 3% decrease to $34.00 which has all been driven by the DCF due to modest downgrades and changes in working capital assumptions. We retain our BUY recommendation and note we expect the buyback to be more active this quarter after only modestly commencing last quarter.

Every analyst covering the company currently holds a buy or strong buy rating.

The $31.72 average target implies about 60% upside, and the most bullish sits above $40.

Foolish takeaway

The bull case for Life360 shares is that a company growing revenue at 38% should not trade on 25 times earnings.

The bear case is that the market no longer believes guidance will be beaten, and a tariff refund flatters the results.

I tend to agree more with the brokers than the share price, because paying circles and advertising are both compounding faster than the cost base.

In the short-term, however, Life360 shares will stay volatile until management either upgrades guidance or explains why it cannot.

The post Life360 shares are 60% below broker targets. Here’s why appeared first on The Motley Fool Australia.

More reading

• Top 3 ASX shares I’d buy after the most recent sell-off
• Brokers rate these 5 ASX shares as a strong buy, and tip upsides of 28% to 62%
• How to build a winning ASX share portfolio and create wealth
• Down 55%: Should I buy Life360 shares in September?
• Are these ASX tech stocks finally a buy again?

Motley Fool contributor Mark Verhoeven 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 Life360. The Motley Fool Australia has positions in and has recommended Life360. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Buying an ASX share is easy. Finding one I would be comfortable leaving alone for many years is much harder.

For a genuine buy-and-hold investment, I want a strong business today with plenty of opportunity still ahead.

These three could be best buys for me.

Pro Medicus Ltd (ASX: PME)

Pro Medicus is an ASX share that has already grown enormously, but I still think its best years could be ahead.

The healthcare technology company develops the Visage imaging platform used by hospitals and radiology groups to view and manage medical images.

Despite winning contracts with some of the United States’ largest hospital networks, management has previously estimated that Pro Medicus still holds only around 11% of the market.

That leaves a substantial number of hospitals still available to win.

There is also more to the opportunity than radiology. Pro Medicus is expanding further into cardiology and broader enterprise imaging, potentially allowing its software to become more deeply embedded across hospital systems.

Winning major healthcare customers can take time, but once the platform becomes central to clinical workflows, I think those relationships can be extremely valuable.

That makes Pro Medicus the type of business I would be comfortable holding through short-term share price volatility.

TechnologyOne Ltd (ASX: TNE)

TechnologyOne could also be one of the best ASX shares for a long holding period.

Its enterprise software is used by councils, universities, government organisations, and other large institutions to manage important day-to-day operations.

These customers generally do not change core software systems lightly. Moving financial, payroll, property, or other critical processes to another provider can be expensive and disruptive. That helps TechnologyOne build long customer relationships and recurring revenue.

I also like that the business still has opportunities outside Australia. Its expansion in the United Kingdom gives TechnologyOne another sizeable market to pursue, while continued investment in cloud software and artificial intelligence could increase the value of its products for existing customers.

Overall, I think TechnologyOne has many of the qualities I want from an ASX share I would own for a decade or longer.

REA Group Ltd (ASX: REA)

REA Group is another ASX share I would be comfortable owning for the long term.

Its realestate.com.au platform has become deeply embedded in how Australians search for property, giving the company a very strong position with both buyers and sellers.

That large audience is a major advantage. Property agents want to advertise where buyers are already looking, while buyers keep returning because that is where the listings are. I think that creates a network effect that is difficult for competitors to replicate.

The Australian housing market will always move through stronger and weaker periods, so listings activity can fluctuate.

But over a long timeframe, I think REA Group’s dominant position and ability to earn more from its audience give the business plenty of room to keep growing.

Foolish takeaway

I would not necessarily expect these ASX shares to outperform every year.

What I like is that each company has a strong position today and a clear opportunity to become much larger over the next decade.

If I could buy Pro Medicus, TechnologyOne, and REA Group at sensible valuations, I would be happy to hold them for years and give those growth stories time to develop.

The post Why I think these are the best ASX shares to buy and hold appeared first on The Motley Fool Australia.

More reading

• EchoIQ shares just crashed 48%. What happens now?
• Expert names 2 beaten-down ASX All Ords healthcare shares to buy today
• 7 ASX healthcare stock picks from Bell Potter
• Forget CSL shares. 3 ASX healthcare stocks with bigger upside
• 6 ASX shares tipped by brokers to rise 34% to 88%

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