Leading organ transplant technology provider TransMedics (TMDX 4.48%) increased sales by more than 100% in 10 straight quarters from early 2022 to mid-2024. However, after delivering revenue growth of "only" 64% in its latest quarter -- while lowering guidance for a 35% increase in the upcoming fourth quarter -- the company has seen its stock plummet roughly 63% from its highs.
As substantial as TransMedics' stock sell-off has been, its underlying business is by no means 63% worse. And remember, this adverse reaction primarily results from 90 to 180 days' worth of data.
As we keep our gaze upon a decades-long time frame rather than mere days, here is why I believe TransMedics looks like a super growth stock to consider in 2025 while its stock remains discounted.
TransMedics' short-term and long-term growth drivers
Simply put, TransMedics' Organ Care System (OCS) delivers vastly superior transplant outcomes than the traditional ice storage process used historically in organ donations. By keeping donated hearts beating, lungs breathing, and livers functioning, the company's OCS adds valuable hours of transport time for organs to reach their recipients.
Powered by this technology and the company's end-to-end National OCS Program (NOP), TransMedics increased its total number of transplants from 330 in 2021 to an estimated 3,600 in 2024, equalling a 20% market share in the United States. Though this dramatic expansion slowed in the last quarter, I believe TransMedics has several growth drivers that should push its stock price to new highs.
1. Deepen existing relationships with transplant centers
The first growth driver that should help TransMedics grow from roughly 3,6000 transplants in 2024 to management's goal of 10,000 in 2028 is becoming the top choice for more of its donation center customers.
Even so, roughly half of TransMedics' customers don’t utilize the company’s OCS as their primary system of choice yet. So despite TransMedics' market share gains over the last few years, it has ample room to continue expanding its use among existing customers, especially as its logistical network grows to support higher transplant volumes.
2. Next-gen heart and lung OCS
The launches of its next-gen heart and lung OCS clinical programs in 2025 will further increase the likelihood of TransMedics deepening its existing customer relationships.
Not only do these next-gen products offer superior outcomes compared to TransMedics' existing systems (which were already the best on the market), but they may also open the company up to new indications that would increase usage.
Image source: Getty Images.
3. Expanding into kidney transplants
Looking a little further ahead on the company's growth timeline, TransMedics has begun developing a Kidney OCS, which could start Food and Drug Administration trials in 2027 and potentially launch in 2029.
Admittedly, this is a ways off, but it could be a huge growth opportunity for the company. Management currently estimates that there are 25,000 kidney transplants in the U.S. each year. To quantify the potential here, consider that there are only 17,000 transplants done annually for hearts, lungs, and livers combined.
4. Organ transplants outside the United States
The international market for TransMedics could prove to be its most significant growth driver in the long run. Already exploring initiatives to bring its lung and liver technology to Europe, management hopes to launch its NOP model in select markets by 2026.
With 40,000 transplants taking place outside the U.S. annually, TransMedics could see decades of growth ahead if it succeeds in international markets.
TransMedics' early profitability and its lowest-ever valuation
In addition to TransMedics being a top dog and first mover in an important industry, it has reached profitability early on despite being in hypergrowth mode and investing heavily in its logistical network. Even with a newly assembled fleet of 18 planes and a dedicated command center to support its logistical network, TransMedics has multiple quarters of profitability and positive cash from operations.
TMDX Operating Margin and Owners' Cash Margin (TTM) data by YCharts
However, because of the company's deceleration in sales growth, the market doesn't seem to care about this budding profitability. Thus, TransMedics remains at its lowest-ever price-to-sales (P/S) ratio.
TMDX PS Ratio data by YCharts
Compared to a more established medical technology peer like Intuitive Surgical and its P/S ratio of 24, TransMedics could prove to be available at a discount. This would be especially true if the company succeeded in reaching management's goal of nearly tripling the number of transplants it does in a year by 2028.
Ultimately, TransMedics' growth options over the next decade are way too promising for me to give up on after a quarter or two of underwhelming sales data. With the stock now trading at its best-ever valuation, it looks like the perfect time to buy shares of this super growth company.
