TransMedics’ revolutionary Organ Care System, high sales growth, and newfound profitability combine with its towering valuation to create wild volatility.
Shares of TransMedics (TMDX -5.03%), a leader in heart, lung, and liver transplant technologies, have plummeted 15% in the past week as of 4 p.m. ET Thursday, according to data provided by S&P Global Market Intelligence.
While no specific news led to the company’s drop, the movement is probably tied to the stock’s increasing volatility following a remarkable doubling in value over the last year.
Can TransMedics meet the market’s lofty expectations?
In the last year, TransMedics’ one-year beta — which measures a stock’s relative volatility compared to the market — rose from 1.6 to 5.1. With a beta above 1 indicating higher volatility, the company’s high and rising mark of 5.1 shows that it is truly one of the wilder rides out there on the market.
Adding further volatility to TransMedics’ stock is that its percentage of shares outstanding held short rose from 4% to 18% over the last three years. This outsize allocation of traders betting against the stock shows that the market is growing increasingly pessimistic about the company’s odds of continuing to deliver near-perfect results.
However, despite this higher volatility, TransMedics’ price-to-sales (P/S) ratio has dropped from 30 to 14 since 2021, thanks to the company’s average sales growth rate of 147% over that time. Additionally, the company’s ability to keep organs alive and healthy for longer following donation finally translated to positive net income and free cash flow over the last year.
This profitability occurred despite the company acquiring and integrating a charter flight operator along with several airplanes to build out its national transplant logistics network.
Ultimately, TransMedics holds a first-mover advantage with its Organ Care System and is revolutionizing the organ transplant industry. However, at 109 times forward earnings, interested investors need to maintain a decades-long time horizon.
