Why Imprivata, Inc. Is Losing One-Third Of Its Value Today

Source: Imprivata

What: After cutting its third-quarter sales and profit outlook to below analyst estimates, shares in Imprivata crashed by 35% earlier today.

So what: Until today,Imprivata has been on a bit of a roll since IPO'ing last June.

IMPR data by YCharts

Interest in the company likely stemmed from growing demand for the company's healthcare data security solutions in the wake of hacker breaches that have compromised data on 120 million Americans since 2009 according to the Department of Health and Human Services.

However, enthusiasm stemming from the massive need to improve how doctors share data securely may have gotten a bit ahead of itself, at least based on Imprivata's preliminary third quarter results.

Following an initial review of its third-quarter financials, the company expects third-quarter sales of between $28.9 million and $29.2 million and that's lower than Wall Street's $31.4 million prediction. Imprivata also believes its third-quarter EPS will be a loss of either $0.22 or $0.23 and that's a bit worse than analyst's expectations for a loss of $0.20.

Now what: Imprivata's slower growth could mean that hopes that losses will be halved next year are too optimistic. Currently, industry watchers think that Imprivata's EPS will be -$0.25 in 2016 versus -$0.57 this year.

However, before extrapolating this quarter's miss too far into the future, investors should know that management is blaming at least some of the shortfall on unexpected delays in closing deals and that those deals could close next quarter.

Management also believes that some smaller providers are holding off on additional IT deployments until they're comfortable with how they're doing with the switchover to ICD-10 medical coding, a massive transition that occurred on October 1. As providers get more comfortable with ICD-10, they may become more willing to buy other software, such as Imprivata's security solution.

Overall, Imprivata's third-quarter performance shouldn't be ignored because it could signal that something is changing in its market that could have a longer-lasting negative impact. However, investors may want to accept that risk in return for the potential that demand rebounds; especially given the importance of healthcare security and the fact that shares are now trading below their IPO price.

The article Why Imprivata, Inc. Is Losing One-Third Of Its Value Today originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.