What happened
Shares of Edwards Lifesciences (EW 0.69%) soared over 52% last year, according to data provided by S&P Global Market Intelligence. The company, which specializes in medical devices used to address structural heart disease, delivered impressive revenue gains and steadily improved full-year 2019 guidance with each quarterly update. That allowed the growth stock to easily beat the 28.8% rise of the S&P 500 in 2019.
Management believes growth should continue for the foreseeable future. As of December, Edwards Lifesciences expected to reach the top end of its full-year 2019 revenue guidance range of $4 billion to $4.3 billion. The company sees revenue increasing 10% to 12% in 2020.
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So what
In the first nine months of 2019, Edwards Lifesciences grew revenue 15.6% compared to the year-ago period. Operating income rose only 10% in that span, primarily due to a 22% increase in research and development expenses. The company is investing heavily in the future as it races to capture an expected $10 billion opportunity in transcatheter valve therapy by 2024.
So far, so good. Edwards Lifesciences generated $700 million in revenue from its transcatheter aortic valve replacement (TAVR) portfolio in Q3 of 2019, which represented 64% of total revenue during the period and marked a 26% increase compared to the year-ago quarter.
Now what
Edwards Lifesciences is now valued at $49 billion -- nearly double its market valuation from the beginning of 2018. On the one hand, the business operates in a high-margin niche with relatively large obstacles to entry. On the other hand, the stock is valued at 38 times forward earnings. While the S&P 500 is trading at a historic premium as well, investors might not be too surprised to see shares cool off if the broader economy slows.
