Shares of TransMedics Group(NASDAQ: TMDX) recently bounded higher in response to a first-quarter earnings report that was a lot better than investors were expecting. Downward revenue guidance revisions and unwanted attention from short-sellers pushed the stock down late last year, but things are looking up.
From the end of 2024 through the opening bell on Monday, May 12, TransMedics stock soared about 81%, and investors want to know if it can keep climbing.
To find out if TransMedics is a good growth stock to buy now, we'll need to weigh the reasons it soared against some of the challenges it faces.
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Why TransMedics stock is so volatile
In a nutshell, TransMedics stock began 2025 in a somewhat depressed state due to a revenue growth slowdown. Annual revenue soared 83% in 2024, but a scathing short report in January caused investors to question its ability to continue growing so quickly. Then management signaled a severe slowdown this February when it predicted revenue growth of just 20% to 25% this year.
TransMedics markets an organ care system (OCS) that pumps donated hearts, lungs, and livers with warm blood. This is a huge improvement over the current standard, which is basically a cooler full of ice. TransMedics' OCS is the only device approved by the Food and Drug Administration (FDA) to transport multiple organs, but it isn't the only warm perfusion device on the market.
In 2021, the FDA approved the OrganOx Metra to pump warm blood through donated livers. This could be a big competitive threat because liver transplantation is responsible for 76% of total revenue at TransMedics.
Since February, privately held OrganOx has raised $160 million to accelerate the growth of its device in the limited market for donated organ transportation. Luckily for TransMedics shareholders, first-quarter results suggest OrganOx isn't the serious threat it could be. First-quarter liver revenue soared 62% year over year, or 22% higher than the previous three-month period.
Perhaps encouraged by the lack of competition for liver sales from OrganOx, TransMedics management raised guidance for total revenue this year to a range between $565 million and $585 million. The revised guidance implies a 30% gain at the midpoint of the provided range.
Looking ahead
During the two-year period that ended last December, total heart, lung, and liver transplants in the U.S. rose by 20% to 17,792. TransMedics is responsible for nearly all that growth. Completed transplants that didn't involve TransMedics rose by just 2% over the same time frame.
There are over 103,000 Americans on the national transplant waiting list, according to the U.S. Department of Health and Human Services. Unfortunately for TransMedics, 89,792 are waiting for kidneys. Since we're born with two, we tend to donate them at convenient times. As a result, kidneys usually don't require transportation and storage services.
While an expansion to include kidneys isn't likely to provide a huge boost for TransMedics, gaining market share for hearts, lungs, and livers could allow it to continue growing sales at more than 20% annually for several more years. The company's share of these three organs rose to 21% in 2024 from just 7% in 2022.
A buy now?
TransMedics stock has been trading for 8.5 times its trailing-12-month sales. This is a high valuation for a medical device company, but not if we assume it can keep growing overall sales by roughly 20% annually in the decade ahead.
Strong growth of liver revenue in the first quarter suggests OrganOx isn't a fierce competitor yet. That said, the privately held company hasn't had much time to put its new sources of capital to work. Instead of buying now or adding to a position, it's probably a good idea to wait another quarter to make sure TransMedics can continue growing its share of liver transplants despite well-funded competition.
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Cory Renauer has positions in TransMedics Group. The Motley Fool has positions in and recommends TransMedics Group. The Motley Fool has a disclosure policy.
