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Why TransMedics Group Is Plunging Today

By Brian Feroldi - May 27, 2020 at 10:14AM

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Shares slumped after the company announced it's raising capital.

What happened

Shares of TransMedics Group (TMDX -4.62%), a medical device company focused on organ transportation, fell about 16% as of 10:37 a.m. EDT on Wednesday after the company announced the pricing details of a common stock offering.

So what

TransMedics let investors know on Tuesday that it wanted to raise about $60 million through a secondary common-stock offering. The underwriters of the deal were also going to have the option to purchase an additional 15% more shares.

BUsinessman With coins falling through his hands

Image source: Getty Images.

The pricing details of the offering were released late Tuesday evening, and investors don't appear to be happy with the details. TransMedics is selling 5 million shares for $14 each. When including the underwriter's option, TransMedics is expected to raise about $70 million before deducting fees.

That $14 price is much lower than Tuesday's closing price of $15.95, which suggests that management was having a hard time drumming up investor interest.

It's also less than half the price that the company was trading for roughly a year ago.

TMDX Chart

TMDX data by YCharts.

Given the details, it's no surprise to see shares taking a step back today. 

Now what

TransMedics' net loss was about $9 million in the first quarter of 2020, and it ended March with about $73 million in cash. Those numbers suggest that it was probably going to have to raise capital again eventually, so this news isn't terribly surprising.

TransMedics grew its revenue by 61% in the first quarter to $7.5 million, so this company remains a high-growth healthcare stock. However, it will likely be several more years before the company reaches profitability, so it's certainly a high-risk stock.

If you believe in this company's long-term potential and are comfortable with risk, today might be a good day to consider opening a position. 

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of TransMedics Group Inc. The Motley Fool has a disclosure policy.

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