Guardant Health (GH -3.35%) commenced trading on Oct. 4, 2018. If you had the foresight and luck to get IPO shares at its $19 debut price, your investment would be up 391%. A $10,000 investment would be worth just over $39,000, based on today's share price, which is hovering around $74.
Most everyday investors don't have the luxury of receiving IPO shares and must purchase shares during the first trading day. If investors bought at the opening trading price of $27.75 or at the first-day closing price of $32.20, a $10,000 investment would have grown to $26,760 or $23,062, respectively. That's a highly attractive return of 268% or 231%, respectively, in slightly more than one year.
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Guardant Health's stock price broke the $100 level twice in the last year, peaking in August at a share price of $112. Assuming you could perfectly time the sale of your IPO initial shares, an investor theoretically could have amassed a 590% return in only 10 months. That sounds more like a hot streak at the tables in Las Vegas!
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Blood tests to personalize cancer treatment
Now let's explore why Guardant Health's valuation has grown substantially. The company develops and sells blood-based diagnostic tests aimed at understanding the molecular profiles of cancer patients' tumors. With information from the tests, oncologists can select treatment options better suited for each patient. In its third-quarter earnings update, Guardant Health reported that it completed 13,259 of these tests for clinical customers.
Guardant's second avenue for growth targets pharmaceutical and biotechnology companies. Guardant believes its tests can identify the patients best suited for clinical trials and allow for ongoing noninvasive monitoring of the patient to detect early relapses. Today, a multitude of anti-cancer drugs look for cancers with specific genetic signatures or mutations. This targeted approach provides fertile ground for Guardant Health to step in to help. In fact, the company ran 5,280 tests for pharmaceutical companies in the third quarter, an increase of 111% from the same quarter in the prior year.
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Guardant Health's storied partner
Softbank Vision Fund owns just under 25% of Guardant's stock, making it the largest shareholder. That's right -- that's the same fund that gained recent notoriety for pouring over $10 billion into the now troubled WeWork. Softbank sold more than $370 million of Guardant's stock in September but still holds over 20 million shares. In addition to an investment, Softbank and Guardant formed a joint venture to commercialize Guardant's tests across Asia, Africa, and the Middle East.
Guardant Health looks financially sound. Cash reserves remain high, revenue continues to grow, and the company increased its earnings guidance yet again. With precision medicine becoming a reality and more molecularly targeted drugs available to patients, diagnostic companies like Guardant that can help optimize those treatment decisions should continue to thrive. That, in turn, should keep rewarding biotech investors over the long run.
