Mad Money

Cramer says 'broken stock' Penumbra is giving investors a gift

Key Points
  • "Mad Money" host Jim Cramer examined the dip in shares of Penumbra, a medical device maker focused on treating strokes and aneurysms by removing blood clots.
  • With the stock down nearly 20 percent since November, Penumbra could be giving investors a buying opportunity, Cramer said.
  • But given that he's only recommended the stock for speculation, Cramer wanted to make sure the move wasn't part of a broader decline.
Cramer says medical-device maker Penumbra is a 'broken stock'
VIDEO0:5700:57
Cramer says medical-device maker Penumbra is a 'broken stock'

When two callers asked CNBC's Jim Cramer about the stock of Penumbra, he told them that it was for speculation only and they should wait for a better entry point to buy.

But there's one problem: "Penumbra hasn't given you many entry points," the "Mad Money" host said.

The first time Cramer was asked about Penumbra's stock was Nov. 2016, when it was at $65. The second time was in March 2017, when the stock was at $82. By Nov. 2017, it had run up to $116, where it peaked. Since then, shares of Penumbra have pulled back roughly 20 percent.

"Given that this is an audience name that's made some of our viewers a lot of mula, I think we've got to figure out whether we're dealing with a buyable dip or if this is just the beginning of a larger, more painful decline," Cramer said. "It's not always easy to tell."

It's worth understanding the business to understand the dip, Cramer said. Penumbra makes medical devices that treat neurovascular conditions like strokes and aneurysms. The company's products help doctors do minimally invasive procedures to remove blood clots.

Part of the reason why Cramer and his callers were so taken by Penumbra's stock was because the company kept reporting strong earnings, hitting Wall Street with beat after beat.

Since May, the company has reported several earnings losses, but the Street didn't seem to care. Revenues — one of the few metrics that matter to small, high-growth companies like Penumbra — were still growing, and management remained bullish, driving shares higher.

But since Penumbra's peak in November, its shares have backtracked, sliding to $94.40 as of Tuesday's close.

"And you know what the worst part is? Sometimes, you've got to own this: I can't really tell you why it went down," Cramer said. "To my admittedly unrefined eye, all of the news seems to have been good news. But that's obviously not how the market saw things."

Still, Cramer tried to break it down. The first leg down came just after the post-earnings rally, which could have been run-of-the-mill profit-taking after a big earnings win, he said.

The second leg could have been attributed to the New England Journal of Medicine, which published a positive piece on Stryker, one of Penumbra's competitors.

But it was positive for Penumbra, too: the gist of the piece was that patients can wait up to 24 hours (instead of the widely accepted six hours) after having a stroke to remove the blood clot, theoretically raising demand for both Stryker's and Penumbra's devices.

Penumbra's stock initially rallied, but gave up its gains within a few days. The last leg lower came after BMO analysts downgraded Penumbra to "hold" from "buy" because of its valuation.

All in all, it seemed to Cramer that Penumbra's decline was a textbook example of investors bowing out of a stock after seeing a reasonable amount of success.

Even though Penumbra would not be a huge beneficiary of the GOP tax overhaul, which would justify some selling, most of it was probably shifty investors worried about the decline, he said.

"The bottom line? I've been telling you to watch out for a pullback in Penumbra since last year. Am I going to run from it now that we got one?" Cramer said. "I think it's a broken stock, not a broken company, and the ax in this name — a fellow by the name of Larry Biegelsen of Wells Fargo — remains pretty darned bullish. And you know what? So am I. The recent weakness in Penumbra, I think, is a gift, and for those who like these high-growth super stocks, I'd take it!"

WATCH: Cramer examines Penumbra for potential gains ahead

Cramer says 'broken stock' Penumbra is giving investors a gift
VIDEO9:1009:10
Cramer says 'broken stock' Penumbra is giving investors a gift

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