Please ensure Javascript is enabled for purposes of website accessibility

This News Explains Exact Sciences' Double-Digit Pop Today

By Brian Feroldi - Updated May 30, 2018 at 3:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares jump after the American Cancer Society tweaks its recommended guidelines for cancer screening. Here's what investors need to know.

What happened

After the American Cancer Society (ACS) made a favorable change to its screening guidelines for colorectal cancer, shares of Exact Sciences (EXAS -4.29%), a diagnostics company focused on cancer, jumped 11% as of 3:13 p.m. EDT on Wednesday.

So what

The ACS announced today that it now recommends that screening for colorectal cancer should begin at age 45 for people who have an average risk of developing the disease. That's five years younger than its previous guidance. 

It made this change after researchers found that new cases of colorectal cancer are becoming increasingly common in younger adults. When combined with ease of use of newer testing techniques -- such as Exact Sciences' innovative Cologuard product -- the ACS felt that this recommendation change was appropriate.

A Cologuard testing kit on top of a white surface

Image source: Exact Sciences.

Traders appear to be excited about the potential ramifications of this favorable recommendation change and are bidding up Exact Sciences' shares today in response. 

Now what

I think that Wall Street is right to look favorably upon this news. If patients and doctors choose to follow these updated guidelines -- and it's hard to imagine why they wouldn't -- then it could expand Exact Sciences' addressable market opportunity by millions of patients. When adding in the fact that the company had previously estimated that it has only captured 2% of its addressable market, the growth potential of this business remains truly massive.

The harder question for investors to answer now is whether shares are a buy at today's sky-high valuation. That's a tougher call. One the one hand, Exact Sciences' revenue is growing extremely fast and the market opportunity ahead is huge. On the other hand, the company is still burning capital and is trading for more than 26 times sales. Any hiccup in the company's growth trajectory could lead to a world of hurt for shareholders.

My view is that the company's recent operating history and market opportunity ahead are strong enough to justify opening up a starter position today. However, its extreme valuation will likely keep the stock's volatility high for the foreseeable future, so bulls need to mentally prepare themselves for a wild ride. 

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Exact Sciences Corporation Stock Quote
Exact Sciences Corporation
EXAS
$36.83 (-4.29%) $-1.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.