Exact Sciences (EXAS 0.10%) and Guardant Health (GH 1.11%) make diagnostic tests to help screen for cancer. The two healthcare stocks have similar price-to-sales (P/S) ratios, and over the past five years, nearly identical high-growth profiles.
Exact Sciences is best known for Cologuard, a non-invasive colorectal cancer screening test that uses stool samples to look for cancerous cells. The company also has tests to detect liver cancer. Its Oncotype DX genomic tests are used by physicians to determine the best treatment options for patients with breast, colon, or prostate cancers.
Guardant uses next-generation genetic sequencing with liquid biopsies to find cancers. Its liquid biopsies search for bits of DNA in a blood sample, and scan them for mutations or other changes connected to cancer.
Guardant's Reveal test is designed to find early-stage cancer, while Guardant360, Guardant360 CDx, Guardant360 Response, Guardant Infinity, and Guardant360 TissueNext are used to determine treatment options for advanced-stage cancer patients.
Both stocks have fared better than the biomedical and genetics sector average, which has fallen more than 17% so far this year. Guardant's shares are up a little more than 5% this year, while Exact Sciences has seen its stock rise by more than 31% in 2023. Let's see which is the better buy.
The case for Exact Sciences
Exact Sciences is a bigger company than Guardant, and that gives it a little more stability. The company reported second-quarter revenue of $622 million, up 19% year over year. And Exact Sciences more than halved its net losses, from $166.1 million in the second quarter of 2022 to a loss of $81 million in the same quarter this year.
Thanks to 31% growth in its precision oncology revenue, which includes laboratory service revenue from global Oncotype DX products and therapy selection products, the company easily made up for an 84% drop in COVID-19 testing revenue compared to the same period last year.
Exact Sciences said it expects full-year 2023 revenue of between $2.441 billion and $2.466 billion, compared to $2.084 billion last year, a 17.7% increase at the midpoint and up from earlier estimates of between $2.265 billion and 2.315 billion.
Since neither company is profitable, two good ratios to compare the companies are price to sales and financial debt to equity. Exact Sciences comes out ahead on both, with a slightly better P/S multiple and a debt-to-equity ratio that is nearly twice as good as Guardant's.
GH PS Ratio data by YCharts.
The case for Guardant Health
Guardant's biggest edge over Exact Sciences is that it appears to be having a better year. In the second quarter, Guardant reported revenue of $137.2 million, up 26% year over year. The big driver of that growth is precision oncology products, which were up 36% over the same period last year. The company lost $72.8 million, but that's a big improvement from the $229.4 million it lost in the second quarter of 2022.
Guardant Health's guidance shows more growth than Exact Sciences. Guardant said it expects yearly revenue to be between $545 million and $550 million, a rise of 21% to 22% over 2022, and up from earlier guidance of between $535 million and $545 million.
Guardant competes head-to-head with Exact Sciences' Cologuard test. Guardant's Reveal test is a plasma-only liquid biopsy designed for the early detection of colon cancer, though the company is seeking approval for the test to be used on other types of cancer. The test is designed to look for any remnants of cancer, especially in patients who have already had treatments.
The company is also gaining approvals for its Guardant360 and Guardant360 CDx tests, which examine circulating tumor DNA for comprehensive genomic profiling, or tumor-mutation profiling, for all solid tumors. With the addition this year of Anthem Blue Cross and Blue Shield, Aetna, and Humana, the tests are now covered by all major private health insurers in the U.S.
Making a solid choice
Though there are similarities between the companies, which stock is better depends on investors' goals. Guardant offers more growth with greater potential returns, particularly since it hasn't climbed as much this year as Exact Sciences.
Exact Sciences, though, is clearly the safer choice. While liquid biopsies from Guardant and other competitors may be eating into its Cologuard franchise, the company generates more revenue and has less debt. And despite its rise in share price, its valuation is a slightly better deal in terms of P/S ratio.
Though neither company is turning a profit yet, Exact Sciences is closer to being profitable. And its greater gross margins show that it's more efficient at producing revenue.
