On Tuesday, B.Riley adjusted its outlook for Augmedix Inc. (NASDAQ: AUGX) shares, reducing the price target to $3.00 from the previous $5.50 while maintaining a Buy rating on the stock.
This adjustment follows Augmedix's first-quarter revenue report, which, at $13.5 million, exceeded both the Street's estimates of $13.4 million and the company's own guidance. The revenue represented a 6% quarter-over-quarter increase and a 45% year-over-year increase.
The firm's decision to lower the price target comes after Augmedix revised its full-year 2024 guidance downwards from the initial range of $60 million to $62 million to a new forecast of $52 million to $55 million. This represents a 23% year-over-year growth at the midpoint.
The revision is attributed to existing clients transitioning to lower-cost services and potential new clients taking time to evaluate various AI offerings before committing to purchases.
Management at Augmedix has indicated they have a clear understanding of the ongoing shift by current customers from their Live product to the Go Assist service, which has led to the reduced revenue projections for the second half of 2024.
However, there is less certainty about when new customers will conclude their evaluations of the 42 different AI offerings currently on the market, which affects the company's ability to forecast a return to more rapid growth.
Despite the revised guidance for 2024, Augmedix management has reiterated their commitment to achieving positive cash flow by the end of 2025. This goal will depend on careful capital allocation and an increased market share in 2025.
B.Riley's lowered price target reflects a growth rate adjustment, setting the enterprise value to sales (EV/S) ratio at 3x, which aligns with comparable companies in the sector.
The market's response to Augmedix's updated guidance appeared dramatic, with the stock price falling 50% in after-hours trading. This decline was significantly sharper than the company's performance in the quarter to date, which saw a 43% decrease compared to the Digital Health ETF EDOC's 3% drop.
B.Riley suggests that the market's reaction may be an overreaction and reaffirms a Buy rating, anticipating stabilization after the initial sell-off.
InvestingPro Insights
As Augmedix Inc. navigates through its revised full-year guidance and the market's response, several financial metrics and analyst insights provide a deeper understanding of the company's position. According to InvestingPro data, Augmedix holds a market capitalization of $114.05 million, reflecting its current valuation in the market. Despite a commendable year-over-year revenue growth of 45%, the company's P/E ratio stands at -9.58, indicating that it is not currently profitable. The negative operating income margin of -41.87% for the last twelve months as of Q1 2023 further confirms the challenges Augmedix faces in reaching profitability.
An InvestingPro Tip highlights that Augmedix's stock is in oversold territory based on the RSI, which could suggest potential for a rebound. Moreover, the company's liquid assets surpass its short-term obligations, providing some financial flexibility in the near term. However, with the stock trading near its 52-week low and analysts not anticipating profitability this year, the road ahead may be arduous.
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