Shares of EXACT Sciences (EXAS 4.42%), a diagnostics company focused on colon cancer, rose more than 13% in September, according to data from S&P Global Market Intelligence. While it was a quiet month on the news front, an analyst at Leerink Partners released a bullish note to the investment community that helped to explain the rally.
Shareholders can thank Leerink Partners analyst Puneet Souda for putting out an upbeat report that featured Exact Sciences stock. Souda maintained his "Outperform" rating on the company's shares and also raised his price target by $5 to $50.
Souda stated that sales of the company's Cologuard test are poised to grow faster than the market is expecting as a result of increased support from the medical community.
A look back at recent history suggests that Souda's bullish call isn't unfounded. At the beginning of 2017, Exact Sciences' management team had projected that full year sales would land between $170 million to $180 million on the back of "at least" 415,000 Cologuard tests. A few months later revenue guidance was raised to a range of $195 million to $205 million and Cologuard testing volume was increased to 470,000. These figures were increased yet again in August to an updated range of $230 million to $240 million and 550,000 Cologuard tests.
Despite these huge test volume gains, management estimates that it has only reached about 2% of its current addressable market. Given Cologuard's momentum and huge runway for growth, investors can't rule out the potential for another beat-and-raise quarter.
Exact Science's investors are having a year to remember. The company's stock has gained more than 250% since the start of the year, largely in response to the series of consecutive beat-and-raise quarters. As a result, shares now trade at a very pricey 33 times sales.
Will the company be able to sustain the momentum that has justified such a lofty valuation? Only time will tell, but I for one wouldn't bet against this company's success.