I should listen more closely to my Motley Fool colleagues. Back in October 2018, Simon Erickson and Shannon Jones were singing the praises of a small company that had conducted its initial public offering (IPO) only a few weeks earlier. The stock soared right out of the gate, jumping nearly 70% on its first day of trading. Both Simon and Shannon thought that this stock was worthy of the hype that it was receiving.
But I didn't check this stock out in more detail. I should have. The stock is up nearly 160% since the release of the podcast with Simon and Shannon.
I've had plenty of time to research this high-flying, much-hyped stock in the meantime. And it's now my top stock to buy in June. Which stock is it? Guardant Health (NASDAQ:GH).
Guardant Health's mission
I'm not always a fan of corporate mission statements. Sometimes they can be so fuzzy that they're useless. Other times, the mission statement is fine but the company doesn't really try to make the mission a reality. However, I really like Guardant Health's mission statement and its execution so far in achieving its mission.
Guardant Health says that its mission is "to conquer cancer with data." In particular, the company is "expanding precision oncology to all stages of disease through easier access to cancer's underlying molecular information." As someone who has had family and friends die from cancer, I love the boldness of a quest to conquer cancer. And as a data geek, I appreciate the approach that Guardant Health is taking in using data to achieve its mission.
While I like Guardant Health's mission statement, I like the progress the company is making in fulfilling its mission even more. Guardant focuses on developing liquid biopsy products. Liquid biopsies, by the way, are blood tests used to detect cancer. They work by finding biomarkers in the blood. These biomarkers are either tiny fragments of DNA that break away from tumors, or intact tumor cells that have broken away from the main tumor.
Guardant Health already has launched two liquid biopsy products. Guardant360 helps match advanced-stage cancer patients with the best treatment. GuardantOmni is used by biopharmaceutical companies to screen patients for clinical trials of cancer drugs. The company also recently launched its Lunar DNA tests for use by researchers only in detecting early-stage cancer and recurrence of the disease.
A massive opportunity
Market research company Frost & Sullivan thinks that the liquid biopsy market across all cancer types could top $100 billion in the U.S. alone. That's a huge, largely untapped potential market. However, more advances in the development of liquid biopsies are required to achieve this lofty target.
But Guardant Health should have a massive opportunity based only on the liquid biopsy products that it's already developed. The company estimates that the advanced-stage cancer market in the U.S. for its Guardant360 and GuardantOmni products is around $6 billion. Cancer recurrence monitoring, the focus for Guardant's Lunar-1 test, could be another $15 billion market.
The biggest prize of all, though, is cancer screening and early detection, which Lunar-2 is designed to do. Guardant projects that the U.S. market for cancer screening and early detection could be around $18 billion.
Is Guardant Health simply spinning the opportunity? I don't think so. Guardant360 and GuardantOmni go hand-in-hand with cancer immunotherapies especially. And there are nearly 450 cancer immunotherapies in development right now. It's not surprising that more than 6,000 oncologists and over 50 biopharmaceutical companies are already using these products.
It's also not surprising that AstraZeneca (NASDAQ:AZN) has teamed up with Guardant Health to develop companion diagnostics for cancer drugs Tagrisso and Imfinzi. I expect more drugmakers will be lining up to work with Guardant in the future.
Before we get too carried away with the potential for Guardant Health, let's talk about some of the risks associated with investing in the company. First, the stock is a wee bit pricey. (OK, it's actually valued at a nosebleed level.)
Guardant Health stock trades at more than 71 times sales. Its market cap of nearly $8 billion reflects expectations of tremendous growth. There's no guarantee, though, that this growth can be achieved.
There are several other companies developing liquid biopsies. The possibility exists that one or more of them could come out with products that are superior to what Guardant Health has to offer.
Guardant Health isn't profitable yet. The company sold nearly $320 million worth of new shares in May to raise cash. It could have to issue additional stock in the future. The problem is that this results in the dilution in the value of existing shares, which obviously isn't great for shareholders.
Why I like this stock
While the risks for Guardant Health shouldn't be overlooked, I still like this stock a lot. It's still really early for liquid biopsies. GuardantHealth has emerged as a leader in the space. The stocks of leaders in potentially high-growth areas that are still in their early stages are especially attractive to me.
I also like that Guardant Health is growing its revenue by leaps and bounds -- for example, it reported 120% year-over-year growth in the first quarter -- even though its products aren't approved by the U.S. Food and Drug Administration (FDA) yet. The company expects to submit for FDA approval of Guardant360 this summer. I think that FDA approval will provide another nice catalyst for the stock.
Sure, Guardant Health's market cap of close to $8 billion seems high. But the company doesn't have to capture much of the addressable market for its current products to be worth a whole lot more than that.
I've learned enough about Guardant Health to think it has a business that could deliver strong revenue growth (and in the future, earnings growth) for a long time to come. I've also learned that I need to pay more attention to my colleagues when they really like a stock.