If you've been looking for stocks that are beating the market, you've probably come across a company called TransMedics Group (TMDX 23.25%). This high-growth stock has been outperforming the broad market by a mile with gains of around 386% over the past 12 months.
NASDAQ: TMDX
Key Data Points
What is it about this largely under-the-radar business that keeps pushing its stock price to new all-time highs? For starters, sales are shooting through the roof.
A banner year
TransMedics Group recently reported fourth-quarter revenue that soared 225% year over year, which is a slight acceleration. Sales for the full year climbed 209% to $93.5 million.
This year probably won't be as thrilling as 2022 was, but it won't be anything to complain about. Management expects total revenue to climb between 48% and 55% in 2023.
Reasons to buy TransMedics stock right now
TransMedics is a niche medical technology company that makes an organ care system (OCS) for hospitals and transplant centers. The OCS pumps oxygenated blood through donated hearts, lungs, and livers to keep them fresh and viable for a transplant.
It's hard to believe but putting donated organs on ice is still standard practice. The company is reporting runaway sales growth because its OCS is an enormous improvement.
Nearly 14,000 American organ donors died in 2021 but there were just 3,818 heart transplants. In one of many clinical trials that highlight the TransMedics OCS' ability to improve organ utilization, 89% of OCS-treated hearts were utilized even though they were harvested from donors after cardiac death (DCD). In the same study, none of the DCD hearts were utilized for transplants.
Image source: Getty Images.
Pumping oxygenated blood through a donated organ to keep it fresh isn't exactly new. TransMedics is the only company with a single system approved by the FDA to handle multiple organs.
Instead of just selling equipment, TransMedics is leveraging its system's status as the only multi-organ platform to launch a differentiated service. The company's national OCS program is the first integrated logistical infrastructure for rejuvenating, preserving, and transporting donated organs.
The TransMedics national OCS program reduces or altogether eliminates the historical time and distance limitations that can prevent a transplant center from operating at full capacity. Clearly, the service is resonating with transplant centers. Eighty-nine percent of the total U.S. case volume recorded in the fourth quarter came from its national OCS program.
Reasons to remain cautious
TransMedics' sales are soaring but not as quickly as its stock price. After climbing sharply over the past year, shares of TransMedics Group are trading at 14.6 times the midpoint of management's estimate for total revenue in 2023.
The company finished last December with $201 million in cash after losing $36 million in 2022. The losses are getting smaller, but investors need to see a steady transition to profitability or this stock won't be able to maintain its lofty valuation.
The company gave investors a relatively modest growth estimate for 2023 due to the constrained supply of its OCS perfusion module. If device production ends up being more constrained than expected, this stock could fall dramatically.
A buy now?
TransMedics' national OCS program allows transplant centers to source organs from much longer distances than they're used to. Assuming the company can solve its present supply issues, the low penetration of its addressable market at the moment means we can reasonably expect several more years of rapid growth.
TransMedics' approvals related to heart, lung, and liver transplants are important, but kidneys could generate more sales than all of its other indications combined. Over 90,000 Americans were on the waiting list for a new kidney in 2021, but fewer than 25,000 transplants were performed.
It's still very early days for the OCS Kidney program. If it pans out, though, an ability to transport donated kidneys greater distances could go a long way toward shortening the list of waiting patients. An eventual approval for OCS Kidney could also push this stock into the stratosphere. With an already large addressable market that could more than double in size, placing a long-term bet on this stock now looks like a very smart move.
