Why OraSure Technologies, Inc. Zoomed Higher Today

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What happened

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OraSure Technologies (NASDAQ: OSUR) is up 18.6% at 3:42 p.m. EST Tuesday after the company announced that it entered into a $143 million agreement to supply its Oragene devices to an undisclosed consumer genomics customer.

So what

The announcement came in the form of an 8-K with the Securities Exchange Commission, not a press release, as would be typical for a big announcement. Considering that OraSure had $111.8 million in product revenue through the first nine months of the year, $143 million would seem to be a big announcement.

But there are a couple of wild cards here.

First the filing notes that the agreement is "over several years." If "several" is three years, that's a substantial boost to revenue. If it's eight years, it's not nearly as big of a deal.

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The other big unknown is the average selling price of the Oragene devices, which are used to collect saliva DNA. OraSure presumably gave a volume discount for that large of an order, so the revenue growth may not help earnings nearly as much if the sales come at a substantially lower gross margin.

Now what

The unknowns make it hard to value the deal, but unless OraSure is selling the Oragene devices at a loss -- which seems highly unlikely -- OraSure is arguably worth more today than it was without the deal. Considering the substantial drop in share price after third-quarter earnings were released earlier this month, today's double-digit move is likely due to investors having more confidence that the company can keep its revenue growth going than an accurate valuation of the deal.

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Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.