ShockWave Medical (NASDAQ:SWAV) and Guardant Health (NASDAQ:GH) both came public in the last year and are off to a fast start. Each of these businesses is growing at a triple-digit rate, and both companies boosted their full-year guidance after reporting expectation-smashing results.

In this episode of The Motley Fool's Industry Focus: Healthcare, host Shannon Jones and Fool.com contributor Brian Feroldi discuss these companies' second-quarter results in detail and share their opinions on whether or not the momentum can continue.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on Aug. 21, 2019.

Shannon Jones: Brian, the first medtech winner is one I know you have been diving deep into lately, and that is ShockWave Medical, ticker SWAV. This is a company you were first excited about when you found out that Abiomed, the company we just referenced, took an equity position in ShockWave prior to its IPO. We did a show all about this company. Let's get folks up to speed. What is it that ShockWave does?

Brian Feroldi: Like Abiomed, ShockWave is focused on cardiovascular disease. What their innovation was is, they created an intravascular system that uses shock waves to break up hardened calcium deposits that are in arteries. When an artery becomes clogged with fatty buildups, over time, it can become rock hard and calcify. Calcium is very, very difficult to treat. There's a number of techniques that are on the market today, but many of them involve either very high-pressure stents or even an artery roto-rooter, and those aren't the safest of surgeries. ShockWave, by using shock waves to break up the calcium, it's very, very safe technology because it only affects the hardened calcium and it basically has no effect on surrounding soft tissue. The technology that's behind this has been used to treat kidney stones for decades, so it's very well understood. What ShockWave did that was innovative was, they miniaturized it and they used it in a different application. So, these guys have been a red-hot growth stock since their IPO.

Their numbers just came out, and you understand why this company has just been on fire. We just saw revenue growth of 339%. Now, that was off of a small base, so the revenue came in at just $10 million. Still an impressive growth rate, for sure. That huge leverage allowed their gross margin to expand 1,100 basis points to almost 60%. Their net loss dropped to $10.6 million, which is well below what Wall Street was expecting. The nice results allowed them to raise their guidance for the full year. Previously, they were expecting $33 million to $36 million. Now, they're expecting $38 million to $40 million. Looking a little further down the road, a little later this year, they're expecting a new device to be launched in some limited markets, and a full launch later next year. That will be used for calcium deposits that are below the knee.

Basically, all around, it was a solid quarter. Every number looked good. Shares popped on the news. This is still an extremely expensive stock. It's been all over the map. Even today, it's trading at about 65 times trailing sales. But when it comes to Q2 results, everything was great.

Jones: Yeah, everything was great. Really impressive stats. Granted, they have technology that's already been out there, they just combined it in a new, innovative way to go after a major market. Talking about market, the FDA approved the device in peripheral artery disease. That's a $1.7 billion market. Also, going after the larger coronary artery disease market, $2 billion there. And then, they've got an aortic stenosis opportunity, worth another $3 billion. So, this is a company with a very large runway, so not surprising to see the premium right now placed on shares of this company. All in all, really impressive quarter all around for this company.

Let's talk about our second winner. Once we get through that one, we're going to pick Brian's brain for who he thinks is out ahead on top, and which one of these is a buy. But first, let's talk about Guardant Health, ticker GH, our next winner. This is a company really at the forefront of the fight on cancer, developing diagnostic tests to help drive detection and treatment earlier. Brian, what is it about Guardant Health exactly that they're doing that really makes them innovative in this space?

Feroldi: Guardant Health is a fascinating business. I don't know if we've ever talked about them on Industry Focus before. This is a company that is in the forefront of liquid biopsies. Currently, if you have a solid-tumor cancer, the way that you diagnose it is to take a sample of it. And depending on where that sample is located, that often can mean invasive surgery, which is both expensive, risky, and the patient certainly doesn't like it.

So, what Guardant's doing is, they're disrupting the way that we diagnose tumors. Instead of having to do a surgery to diagnose lung cancer, for example, now, Guardant's technology allows it to be diagnosed just with a simple blood draw. Instead of going in through your lungs and taking a tissue sample out and sending it off to the lab, Guardant not only speeds up the process, the test results come back much faster, but it saves the patient from having to go to unnecessary surgery, and it's also much, much cheaper. For context here, a traditional lung cancer biopsy costs about $14,000, whereas Guardant can diagnose that same cancer for $3,500.

This is a very interesting technology that is a win for everybody in the healthcare system. And because of that, they have been posting explosive, explosive growth. Their technology can currently be used to detect dozens of cancers. Right now, they're just focused on late-stage cancers in the solid tumor. But down the road, they hope to gradually advance the technology so they can diagnose it earlier and earlier. And when you get into that market, the market opportunity here is just enormous. We're talking about $30 billion plus just in the U.S. for that opportunity. This is a fascinating business.

Jones: And that's $30 billion just here in the U.S. When you actually look out globally, that's potentially a $100 billion opportunity when you look across the landscape and see all the different indications that they're going after. We saw really strong uptake in this last quarter with their Guardant360 test. It's being used by more than 100,000 patients now, prescribed by over 6,000 oncologists. Guardant also partners with a lot of the biopharmaceutical companies we talk about on Industry Focus, really helping them develop what are called companion diagnostics that go with their treatments. And then, also, within just that segment alone, drug-making partners used 5,285 tests during the quarter, up 112% year over year. Revenue within the development services segment jumped massively, 664% to $11.9 million. I think, all in all, when I look at that, I'm impressed to see uptake is increasing, they're expanding, they've got some optionality. What did that look like, though, in terms of quarterly performance?

Feroldi: In Q2, revenue jumped 178% to $54 million. Now, that number itself isn't all that impressive, but what is impressive is that Wall Street was expecting $36 million. Just a massive beat on the top line. And all that sales leverage allowed their gross margin to expand by 2,000 basis points, from 49% to 69% this quarter. When you combine huge sales growth with an expanding gross margin, their net loss plummeted to $11 million. Sounds like a big number, but this is a company with more than half a billion dollars in cash on its balance sheet. And because of that huge beat, they raised their guidance for the year. Previously, they were expecting $145 million to $150 million. Now, they're expecting $180 million to $190 million. Wall Street just eats that stuff up. This stock surged 21% on the day of the announcement, and it's just been a monster winner.