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Motley Fool: Testing, testing: Is this stock on?

Quidel has reached a distribution deal with McKesson to distribute its at-home COVID-19 tests.  (David Paul Morris/Bloomberg)
Quidel has reached a distribution deal with McKesson to distribute its at-home COVID-19 tests. (David Paul Morris/Bloomberg)

Quidel (Nasdaq: QDEL) is a small but growing company focused on health diagnostics and testing, including testing for COVID-19. The company had an outstanding 2020, with revenue more than tripling year over year due to huge demand for its COVID-19 offerings. Revenue for the first quarter of 2021 more than doubled over year-ago levels, too.

That’s all exciting, but the stock was recently down more than 60% from its 52-week high, as investors see vaccinations taking hold and expect a slowdown in testing for COVID-19. Testing isn’t likely to go away anytime soon, though, as much of the world is still not vaccinated and variants of the virus keep materializing.

Meanwhile, Quidel has reached a distribution deal with McKesson to distribute its at-home COVID-19 tests, which will open up more opportunities in the near future. More deals like this will drive revenue growth.

Quidel isn’t a stock to just buy and forget about: Much depends on how long people will continue to need testing for COVID-19, as well as on how the company’s business will adapt once the pandemic is really over. But at the very least – recently trading near 52-week lows and with a market value recently below $5 billion – Quidel looks to be a promising buy in 2021, with much room for growth. (The Motley Fool owns shares of and has recommended Quidel.)

Ask the Fool

Q: Does it really matter if I buy an overvalued stock, as long as it eventually grows in value? I’m buying for the long term, after all. – F.H., Ardmore, Indiana

A: Ideally, we should buy stocks that seem undervalued, as they offer a margin of safety. Buying overvalued stocks can be risky, as they might drop closer to their intrinsic value at any time, especially over the short term. Yes, over the long term, the intrinsic value of healthy and growing companies will grow. But it’s still possible to simply pay too much for a stock.

Consider, for example, networking titan Cisco Systems, which was a market darling before the internet bubble burst. Cisco’s stock was trading between $55 and $59 per share (on a split-adjusted basis) back in 2000 – but recently it was trading at around $52 per share. Those who bought the stock near its peak back then are still underwater – 21 years later!

Companies and their stocks don’t always perform as you hope or expect, so it’s best to reduce your risk by focusing on healthy and growing companies, ideally with little to no debt, that are trading for much less than they’re likely to be worth in the future.

Q: How can I access the earnings reports that companies file with the Securities and Exchange Commission (SEC)? – J.N., Strasburg, Virginia

A: Try starting at a company’s own website, where it’s likely to have an “Investors” area, with links to earnings reports and other resources. Or call the company’s Investor Relations department and ask if they can mail you the latest filings. You can also look up companies’ quarterly 10-Q and annual 10-K reports at SEC.gov/edgar.shtml.

My dumbest investment

My dumbest investments have been stocks I bought after listening to tips from well-meaning friends. Needless to say, they didn’t turn out well. – I.G., online

The Fool responds: It’s easy to be tempted to act on hot stock tips from friends or relatives – or even from strangers. It’s best to exercise restraint, though. For one thing, any particular recommended stock might end up heading south instead of north, taking a chunk of your money with it.

Keep in mind, too, that you don’t necessarily know where the tip came from: It might be from your friend’s friend who’s a savvy investor – or from their dentist, a mediocre investor who read some hype about the company online. It would be helpful to know just how good a track record the person recommending an investment has, but that’s probably a mystery. Even with financial talking heads on TV who are presented as investing experts, we generally don’t know how good or bad they are at stock-picking.

In general, one of your best moves upon receiving a hot stock tip is to ignore it. The other is to do your own research into the company: See if it’s healthy and growing, if it has sustainable competitive advantages and if it’s priced below what it’s really worth. If you buy it after researching it, you’ll be making an informed decision rather than just taking your chances.

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