What happened

Shares of CareDx (NASDAQ:CDNA), a diagnostics company with a growing presence in the organ transplant niche, are heading higher after the company's first-quarter earnings report. Revenue and adjusted earnings that rose faster than analysts were expecting have pushed the stock 14.5% higher as of 11:00 a.m. EDT on Thursday.

So what

CareDx reported total revenue that rose 85% compared to the prior-year period, to $26.0 million. That was 11% more than the company reported during the previous quarter and $1.7 million more than consensus expectations. The company also beat bottom-line forecasts with an adjusted profit of $0.05 per share when Wall Street was expecting a $0.04-per-share loss.

Doctor reading diagnostic reports.

Image source: Getty Images.

CareDx's lead product, the noninvasive AlloSure kidney test for posttransplant patients, is becoming entrenched in its niche. The company completed 5,710 tests in the first quarter of 2019, which was 25% more than the previous quarter.

CareDx reported a small net loss on its income statement. If you exclude $9.1 million in stock-based compensation and other noncash expenses, adjusted earnings reached $2.2 million.

Now what

During the earnings call, management said positive cash flow reported in the first quarter is something investors can get used to. CareDx also tempered earnings expectations by reminding investors that the company recently acquired OTTR Complete Transplant Management for $16.0 million in cash just a few weeks ago. Implementing the monitoring system also used by the vast majority of transplant care centers will pay off down the road, but operating expenses will most likely rise significantly this year.

CareDx raised its outlook for 2019 revenue from a range between $105 million and $107 million issued a few months ago to a range between $113 million and $115 million. At the moment, AlloSure tests have been used to monitor for organ rejection in a tiny sliver of the available patient population. That gives this stock plenty of room to grow, and at recent prices of 12.6 times expected 2019 sales, it's probably a bargain.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.