Why Is AVITA Medical (ASX: AVH) Falling Today?

By Jason McIntosh | 8 January 2025

Shares of AVITA Medical Inc (ASX: AVH) experienced a sharp decline on January 8, 2025, falling by 19% to around $3.51. This steep drop came in the wake of a financial guidance downgrade for FY 2024, which left investors disappointed and concerned about the company’s near-term outlook.

Let’s dive into the details behind this drop and what it means for investors.

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Key Reasons for AVITA’s Decline

1. Softer-than-Expected Q4 Performance

AVITA Medical, known for its wound care management and skin restoration devices, reported weaker-than-anticipated demand in the fourth quarter of FY 2024. This softer performance caught investors off guard, given that demand for such products had shown resilience in previous quarters.

2. Revenue Guidance Miss

The company slashed its commercial revenue expectations to approximately USD $64.3 million for FY 2024, falling short of its previous guidance range of USD $68 million–$70 million. Missing guidance is always a red flag for investors, as it often signals underlying challenges that may take time to resolve.

3. Inventory Adjustments by Hospitals

At the end of their fiscal year, several hospital accounts adjusted their inventory levels. This led to reduced purchasing activity during December, further impacting AVITA’s quarterly performance. While these adjustments may be temporary, the impact was significant enough to weigh heavily on the company’s near-term financials.

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CEO’s Confidence in Long-Term Growth

Despite these challenges, AVITA Medical’s CEO, Jim Corbett, remained optimistic about the company’s long-term prospects. He pointed out that normal purchasing activity is expected to resume in the first quarter of 2025, providing hope for a potential rebound. However, the immediate question for investors is whether this guidance miss is an isolated issue or indicative of broader, systemic challenges within the company.

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What Can Investors Learn From This?

The decline in AVITA’s stock serves as a stark reminder of the importance of risk management in investing. Even companies with strong growth potential can experience setbacks that significantly impact their stock price.

One way to protect your capital in such situations is by employing a stop-loss strategy, which is central to many successful investment approaches. A stop-loss is a predetermined price level at which an investor decides to exit a trade to limit losses. This disciplined approach ensures you don’t hold on to a stock that continues to decline, preventing a small loss from turning into a significant one.

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The Role of Risk Management in Volatile Markets

Volatility is part and parcel of the stock market, and events like AVITA’s revenue downgrade are a perfect example of why having a clear investment plan is crucial. Some of the core principles that I use to avoid large losses include:

• Diversification: Spreading your capital across multiple stocks to reduce the impact of a single company’s underperformance.
• Position Sizing: Limiting how much capital you allocate to any one trade to manage risk effectively.
• Exit Strategies: Using trailing stops to lock in gains and cut losses.

These principles are designed to help investors navigate market uncertainty while staying focused on long-term wealth creation.

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What’s Next for AVITA Medical?

While AVITA’s recent guidance miss is disappointing, it’s worth noting that the company’s long-term growth story remains intact, according to its CEO. Investors will likely look to the first quarter of 2025 for signs of recovery in purchasing activity and improved revenue trends.

For those considering AVITA shares, the current dip could present a buying opportunity—but only if you’re confident in the company’s fundamentals and have a clear plan to manage your risk. As always, do your due diligence before making any investment decisions.

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Final Thoughts

AVITA Medical’s sharp decline today highlights the importance of having a disciplined investment strategy. Whether you’re trading small-cap growth stocks like AVITA or investing in blue-chip companies, the key to long-term success lies in protecting your capital and following a repeatable, rules-based process.

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Jason McIntosh | Founder, Motion Trader

Jason’s professional trading career began over 3 decades ago. He’s a founder of two stock advisory firms, a listed funds management business, and has helped thousands of investors navigate the stock market. Click here to read Jason’s incredible story of, at age 20, sitting alongside some of the world’s greatest traders (and the life changing experience that came with that).