Why MiMedx Group Shares Rallied as Much as 24% Today

What happened

There wasn't any news specific to MiMedx Group (NASDAQ: MDXG) today, but shares have fallen sharply this year due to an internal investigation into its accounting and external news, including the indictment of former speakers on medical fraud charges.

With MiMedx Group shares trading 3.25 times its sales, it appears bargain hunters could be betting on a rebound. At its peak earlier today, MiMedx Group shares were up 23.9%.

So what

Growing use of MiMedx wound-healing products has helped support significant revenue growth at the company over the past couple of years, but investors have abandoned the stock over concerns relating to its internal accounting and reports that speakers hired by the company to talk about its products have been arrested on fraud charges.

On Feb. 20, management announced that it would delay its annual 10-K filing with the Securities and Exchange Commission pending findings from outside legal and accounting advisors hired by its internal audit committee to investigate its sales and distribution practices and the accounting treatment of contracts with distributors.

The investigation follows allegations by short sellers last year that sales were inflated by the company's accounting practices.

MiMedx Group investors were dealt additional bad news in early May when it was revealed that three members of its speakers group were indicted in South Carolina for healthcare fraud and conspiracy following an investigation by the Department of Veterans Affairs. Following the news, the company reminded investors that it hasn't been indicted.

Now what

We don't know when MiMedx Group's internal review will wrap up and allow it to get current on its SEC filings. But it's possible that investors are anticipating this review will be completed soon and that any findings won't require a restatement of its past results or indicate significant headwinds to sales will exist.

In late April, management reported that its ongoing internal investigation makes it unable to report specific numbers for the first quarter, but management did say it outperformed its guidance in December for first-quarter revenue of up to $92 million. It also said that because of its first quarter out-performance, it was raising its full year revenue forecast to a range of $389 million to $394 million from a previous range of $383 million to $387 million.

Overall, its unknowable what the investigation will reveal, so despite the company appearing to be cheap on traditional valuation metrics, including its price-to-sales ratio, most investors should probably focus on other investment ideas until the investigation is over.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.