1 Organ Transplant Stock Up 500% In 18 Months

Up more than 30 percent YTD, organ transplant technology company TransMedics (NASDAQ:TMDX) has been a major winner among medical sector stocks in 2023.

The company specializes in organ care systems that maintain transplant organs once they have been removed from donors. In addition to this preservation technology, the company also provides clinical-level support to transplant centers, making it an end-to-end provider for transplantation logistics.

One of the key catalysts for growth this year was the company’s Q1 earnings report. In that report, Transmedics detailed 162 percent year-over-year revenue growth to a quarterly total of $41.6 million.

Gross margin remained quite high at 69 percent, though this represented a decline from 76 percent in Q1 of 2022.

Quarterly losses, however, fell significantly. In 2022, the company’s Q1 net loss was $10.6 million. This year, that number fell precipitously to just $2.6 million.

Investors also responded positively to the company’s August 1st announcement of a concrete deal to acquire charter flight operator Summit Aviation.

Through this acquisition, TransMedics plans to position itself as a nationwide solution for organ transplant transportation logistics.

Building a go-to logistics network would naturally complement the company’s existing business, creating the potential for higher revenues and future earnings.

It should be noted, however, that TransMedics pared its gains substantially after the release of its Q2 earnings report on Friday. This report was actually quite positive, detailing revenue growth of 156 percent year-over-year to $52.5 million.

However, end-of-quarter reporting also revealed that CEO Waleed Hassanein had sold 7,500 shares of his personal TransMedics holdings earlier in the week. The market appears to have overreacted to this news, especially in light of the fact that Hassanein still holds over 536,000 shares.

Is TransMedics a Good Stock to Buy?

The selloff that took place after Friday’s quarterly report does not appear to be justified, especially in light of the company’s improving fundamentals. As such, there may be a buying opportunity for investors while prices remain low.

Given that TransMedics is still posting triple-digit revenue gains, the stock has considerable potential for risk-tolerant growth investors.

Based on Q2’s report, TransMedics also appears to be inching closer to profitability. Following Q1’s loss of $2.6 million, the company lost just $1 million in Q2. Gross margin also stabilized at 70 percent.

Analysts expect TransMedics to achieve profitability in the next 12 months, with forward earnings projected at $0.03 per share.

Looking at the company’s fundamentals, it appears that TransMedics could be a good stock to buy. However, it should be noted that the stock is still trading at enormous multiples to its potential near-term earnings.

In order to justify this pricing, TransMedics will have to continue improving its net margins while also maintaining high levels of revenue growth. So far, management has been very successful in both of these areas.

What Is the 5-year Forecast for TransMedics Stock?

Owing to its high current growth rates and relatively short history, it’s difficult to say exactly where TransMedics stock could be five years from now.

By the end of 2024, quarterly earnings are projected to reach up to $0.22 per share. Assuming TransMedics can keep its growth at a sufficiently high level, it seems reasonable to suppose that the stock could rise at a rate of 15-20 percent for the next few years.

While TransMedics’ P/E ratio will be high if and when it first achieves profitability, the company has enough of a growth runway to make up for a premium valuation. Investors should be aware, however, that slower growth could easily change TransMedics’ outlook.

So far, the company has been able to expand its revenues at a blistering pace. While growth rates will naturally fall as the company matures, TransMedics will have to maintain fairly high growth for at least the next five years in order to arrive at a fair valuation.

What Is the Stock Market Prediction for TMDX?

Analysts maintain a very positive view of TransMedics’ short-term prospects. Five of the six analysts covering the stock rate it as a buy, while the sixth maintains a hold rating.

The median target price for the stock over the coming 12 months is $99, implying a gain of 23.3 percent from the most recent price of $80.29.

Even more encouragingly, the lowest price target for TMDX is $81. This suggests that analysts see little room for downside in TransMedics this year.

Is TMDX a Good Investment?

TransMedics appears to be moving in the right direction as a company. Despite the recent selloff, the revenue growth and rapidly shrinking losses both point to a bright future for TransMedics. The company also has significant opportunities for expansion outside of the US market, which could be a key driver for future growth.

Due to increasing demand for organ transplants, TransMedics operates in a market that is expected to see a growth rate in excess of 9 percent from now through 2030. As a leading organ care services provider, the company is well-positioned to benefit from this ongoing market growth.

The company is also continuing to build out its services. As noted above, the Summit Aviation acquisition will be a key part of TransMedics’ strategy to create a national transportation logistics network.

In the most recent quarter, the company acquired new intellectual property from Bridge to Life, including the rights to a critical ex-vivo organ support system. Strategic acquisitions will be crucial to maintaining revenue growth, and TransMedics appears to be performing well in this area.

Overall, TMDX may prove to be a good investment for growth investors. With enormous revenue growth, a pullback buying opportunity and profitability seemingly on the horizon, there’s much to like about TMDX at the moment.

While the stock’s premium pricing may deter more conservative and value-focused investors, its growth potential is difficult to ignore.

Investors interested in this stock may want to keep their positions small for the time being, but TransMedics has at least the potential to generate market-beating returns.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.