Why Outset Medical's Shares Rose 22.5% in December

What happened

Shares of Outset Medical (OM -5.79%) climbed 22.5% in December, according to data provided by S&P Global Market Intelligence. The dialysis equipment maker closed November at $21.08 a share, then rose to as high as $27.11 on Dec. 21. The stock has still declined more than 47% over the past year and has a 52-week low of $11.41 and a 52-week high of $48.71.

So what

Outset manufactures the Tablo Hemodialysis System, designed to simplify the task of dialysis for hospitals and in-home care for patients with kidney disease. The company's shares kept climbing because of improved guidance that it mentioned in its third-quarter report, but also because the company signed a contract with the Department of Veterans Affairs.

In the third quarter, Outset said it now expected full-year 2022 revenue to fall between $111 million and $113 million, compared to $102.6 million for 2021. The contract, signed in August, is for five years and will enable the company to sell its Tablo systems into the 106 VA hospitals in the United States and into home settings for veterans. The system is already in some VA hospitals, but the deal will allow VA centers to buy additional Tablo consoles and send veterans home with them.

The climb represents a turnaround after the healthcare company, in June, put a shipment hold on the Tablo because of a pending FDA review due to changes made to the system since its FDA clearance in March 2020. The company's stock began to bounce back in August when the FDA cleared the changes in the company's 510(K) submission.

Now what

Outset went public in 2020 and has increased annual revenue by slightly more than 5,000% over the past five years. Unfortunately, it also has been steadily losing money. The Tablo system has huge potential because it represents potential cost savings by allowing patients to do their own dialysis treatments at home. The device can be monitored, through the cloud, by physicians, to ensure that it is being used properly, avoiding the need for more costly visits by patients to dialysis centers. 

The big concern for Outset is whether its growing revenue can outstrip its losses. In the third quarter of 2022, the company said through nine months it had lost $121.5 million, or an earnings-per-share (EPS) loss of $2.54, compared to a loss of $90.7 in the first nine months of 2021, or an EPS loss of $1.96 in that period.