TransMedics Group (TMDX -3.01%) once ranked among the hottest healthcare stocks around. Shares of the medical technology company delivered a gain of more than ninefold between the beginning of 2022 and late August of 2024.
However, TransMedics has become a dumpster fire for investors since then. The stock plunged roughly 60%. But such sell-offs can sometimes present great opportunities for forward-thinking investors. Could TransMedics Group stock be a millionaire-maker in the making?
NASDAQ: TMDX
Key Data Points
Many of the right ingredients
I think TransMedics Group has many of the right ingredients needed to be a massive winner. Most importantly, the company markets a potentially game-changing product.
For decades, the standard of care in transporting donor organs was cold storage. There are two main problems with this approach, though. First, many of the organs never make it to their intended recipients in condition to be used. Second, post-transplant complications often occur.
TransMedics brought a solution to these problems with the 2018 launch of its Organ Care System (OCS) for transporting donor lungs. The company secured regulatory clearances for OCS in hearts and livers in 2021.
OCS uses warm-perfusion technology that keeps donor organs alive outside the body: Lungs "breathe," hearts beat, and livers produce bile. The percentage of donor organs that are usable is much higher with OCS than with cold storage. Severe post-transplant complications are also significantly reduced.
TransMedics Group is already profitable. Its revenue continues to grow rapidly, jumping 50% year over year in the fourth quarter of 2024. The company is expanding the organ transplant market through its National OCS Program, which provides a turnkey solution that includes organ procurement and logistics services. In addition, TransMedics is developing a more powerful next-generation version of OCS as well as working to expand the system to support kidney transplants.
One fly in the ointment
With all of those positives, why has TransMedics' stock sank like a brick in recent months? First, the company announced disappointing third-quarter results on Oct. 28, 2024. Although TransMedics reported revenue jumped 64% year over year in Q3 to $108.8 million, analysts were expecting revenue of $115 million. Its Q3 earnings per share of $0.12 also fell far short of the consensus estimate of $0.29.
While investors questioned whether or not TransMedics' Q3 results were an anomaly or an indication of a larger problem, another shoe dropped in January 2025. Short-seller Scorpion Capital published a scathing report alleging that TransMedics committed billing fraud and didn't report device failures. Scorpion also claimed that alternatives to OCS, such as abdominal normothermic regional perfusion, are "radically cheaper." The short-seller even formally requested that the U.S. Food and Drug Administration (FDA) suspend its pre-market approval of OCS.
TransMedics quickly responded, stating in a press release, "We strongly believe that the claims made in the Scorpion Capital report have no merits and were primarily intended to manipulate the market for financial gains." The company announced on Feb. 27, 2025, that an independent review of its business practices conducted by the law firm Kirkland & Ellis LLP with assistance from an outside forensic accounting firm "identified no evidence of misconduct." TransMedics also submitted a response to the FDA that it believes effectively refutes allegations made by Scorpion Capital.
A millionaire-maker?
Scorpion Capital predicted "a customer exodus and rapidly unfolding death spiral" that could lead to TransMedics Group's shares ultimately being worthless. That doesn't sound like a millionaire-maker in the making.
This gloomy scenario hasn't materialized so far, though. TransMedics beat Wall Street earnings estimates with its 2024 Q4 results.
Maybe TransMedics Group stock could make some shareholders millionaires over the long term. However, I doubt that an investment of $10,000 will grow to $1 million over the next two decades. Importantly, significant growth is already baked into the share price with TransMedics' forward price-to-earnings multiple of 47.
Still, I think TransMedics stock could return to its winning ways for investors, assuming the company moves past the dark cloud hanging over its head. A stock doesn't have to be a millionaire-maker to be a good pick.
