Key Points

The company crushed analyst estimates in its first quarter, but for many investors it didn't crush them enough. Regardless, several analysts cut their price targets just after the earnings release was published.

With a nearly 39% stock price decline this week, according to data compiled by S&P Global Market Intelligence, GeneDx Holdings(NASDAQ: WGS) was deep in the doghouse with investors. They traded out of the stock following the company's latest earnings release and a subsequent round of analyst price target cuts.

A victim of high expectations

What's interesting about GeneDx's tumble is that its first-quarter performance was, on the surface, rather good. The figures released Wednesday revealed the DNA testing company managed to boost its revenue by 42% on a year-over-year basis to slightly more than $87 million.

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On the bottom line, it posted non-GAAP (adjusted) net income of nearly $7.7 million ($0.27 per share) against the year-ago loss of nearly $8 million.Image source: Getty Images.

Both numbers well exceeded the consensus analyst estimates.

The catch was that GeneDx has posted more spectacular beats on analyst estimates in the past, to the point where many market players are expecting a continued level of outperformance -- and disappointed when they don't get it.

The unkindest cuts

Adding to the generally bearish sentiment, several pundits tracking GeneDx stock trimmed their price targets on the stock.

One of the cutters was BTIG's Mark Massaro, who now feels the company is fairly valued at $100 per share; previously his level was $115. According to reports Massaro's modeling indicates that the company now trades at only 4 times his 2026 revenue estimate, making it attractively cheap on that basis. This is a key reason why he maintained his buy recommendation despite the price target cut.

The BTIG pundit wrote in his analysis that investors overreacted to GeneDx's quarterly results, and I'd agree. I think this is one of the more solid businesses in the biotech world, and I don't feel investors should bail on it if it doesn't meet inflated growth expectations.

Should you invest $1,000 in GeneDx right now?

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Why Investors Were Avoiding GeneDx Holdings Stock This Week was originally published by The Motley Fool