Dejavoo, Unfortunately, this is something separate (albeit...

Dejavoo,

Unfortunately, this is something separate (albeit related).

This is their big trial that sought to show causality between sleep apnoea and heart chronic heart disease. The results were only cited to become available by the end of the year.

Clearly, they took a look at the preliminary findings, which were poor enough for them to decide to terminate the trial early.

While this avenue of research was principally to develop an auxiliary revenue stream, unfortunately the market appears to have been awarding the share price with some form of option premium for this programme.

The stock is currently trading at around 26x P/E, which is probably around a 50% to 60% premium to the broader market. This compares to the long-term premium multiple closer to 40%.

I think investors need to brace themselves for a reversion closer to the historical premium.

Additionally, there will be some lost sales (around 1% or 2%) from cardiologists who had been using Resmed devices pre-emptively and, because these are high-margin revenues, I expect the EBIT hit might be 3%-4% and the NPAT/EPS hit 5% to 6%.

So the stock will experience earnings downgrades of around 5% combined with a P/E de-rating of some 10% to 15%.

The result, I'm afraid, looks like it could be a ~15% fall in the share price tonight in the US and tomorrow in our market.

I would be pleasantly surprised if the stock trades much above $7.00 here tomorrow.

That's the trouble when you get stocks that are priced for near perfection, and something other than perfection comes to pass.

I hate to be the bearer of bad news, but I think its important to call it like it is.