Uncover the Healthcare Company that Delivered Gains Equal to Nvidia within a Year's Timeframe
Uncover the Healthcare Company that Delivered Gains Equal to Nvidia within a Year's Timeframe
Cautious investors have always acknowledged that healthcare expenditures increase consistently, irrespective of the economic trend's direction. This sector is often considered secure, yet it still holds stocks capable of skyrocketing under favorable circumstances.
This year, the cosmos conspired in favor of GeneDx Holdings (WGS -2.79%), a genetic testing company. Over a 12-month period ending Nov. 13, the stock soared a staggering 6,070%. For perspective, Nvidia's five-year performance delivered a mere 2,700% return.
Investors are naturally curious if the genetic testing stock can climb even higher. Let's explore the reasons behind its meteoric rise to determine if it merits a position in your investment portfolio.
Why GeneDx continues to soar
In 2022, Sema4 acquired GeneDx, which was at the time a subsidiary of Opko Health. Sema4 utilized artificial intelligence (AI) to develop health models, and GeneDx's genome and exome sequencing operations amplified their business operations.
When children exhibit developmental disorders, autism, or unexplained epilepsy, genetic testing has become a standard diagnostic procedure. GeneDx can sequence a patient's genome, which encompasses their complete genetic information. It also analyzes the genome's smaller portion, which encodes proteins, known as the exome.
GeneDx recently reported that third-quarter revenue grew 44% year over year to $76.9 billion. Investors were pleased that the company's new genome and exome sequencing operation was not only lucrative but also responsible for 78% of total revenue. Adjusted gross margin increased to 64.4% in the third quarter from 50.7% in the preceding year.
Despite reporting losses on a generally accepted accounting principles (GAAP) basis, GeneDx made an adjusted profit of $1.2 million during the third quarter after accounting for stock-based compensation, depreciation, and other non-cash expenses.
When reporting its third-quarter results, management raised the midpoint of its revenue guidance for the full year to $287 million. Previously, it predicted $260 million. In response to this guidance update, Wells Fargo upped its price target for GeneDx from $34 to $75 per share.
Further opportunities for growth?
Wells Fargo boosted its price target but retained a neutral rating on the stock due to its expensive valuation. The stock has been trading at approximately 7.5 times 2024 sales projections. For reference, America's major diagnostics companies, Quest Diagnostics and LabCorp, trade at less than 2 times their trailing-12-month sales.
Currently, GeneDx is thriving because it shifted its commercial focus to pediatric neurologists in 2023. This niche has the potential for further growth as the company has barely scratched the surface. According to GeneDx, sales have penetrated only 12% of American pediatric neurologists.
GeneDx claims to dominate the U.S. exome sequencing market with an 80% market share. Newborn screening represents a multibillion-dollar opportunity annually, and it's not the company's sole target market. If GeneDx continues to lead the exome sequencing market for several more years, it could generate substantial gains, despite its high valuation at the moment.
Before investing in GeneDx, it's crucial to acknowledge that the diagnostics industry is fiercely competitive. Attracting pediatric neurologists to exome sequencing is currently generating slim profits. Unfortunately, it's only a matter of time before numerous competitors jump into the niche with aggressive pricing strategies.
You can't count the potential exome sequencing service providers who have taken note of GeneDx's recent success on your fingers and toes. With this in mind, it might be wise to monitor this stock from a safe distance.
Given the current market situation, some investors might be curious about whether additional finance opportunities exist in the genetic testing sector, specifically with GeneDx Holdings. With its recent remarkable growth and strong revenue report, the company's stock price has been attractive to investors, reaching a staggering return of 6,070% over a 12-month period. This strong performance in the finance market has led some financial analysts, such as Wells Fargo, to consider the potential for further growth and increase their price targets. Investors might be considering whether to add investing in GeneDx to their financial portfolios given its strong performance and potential for future growth.