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Why Did Shockwave Medical Stock Gain 18% in August?

By Ryan Downie – Sep 7, 2021 at 2:18PM

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The medical device stock is growing even quicker than investors anticipated.

What happened

Shockwave Medical (SWAV -3.70%) stock rose 17.7% in August, according to data provided by S&P Global Market Intelligence, after a great quarterly earnings report. On Aug. 9, the healthcare stock announced 444% year-over-year revenue growth for the second quarter. Those $56 million in sales exceeded analyst estimates by nearly $11 million. The company also increased its full-year revenue guidance by approximately 10%.

So what

Shockwave Medical makes innovative medical devices used in intravascular lithotripsy (IVL), which involves the use of sonic pressure waves to treat calcified cardiovascular disease. Cardiovascular calcification is very common in older Americans, and it can lead to serious health complications, including death.

Shockwave has driven exceptional growth by launching a new device and achieving several other milestones. The company secured new payment approvals from the Centers for Medicare & Medicaid Services for inpatient and outpatient procedures. Shockwave's devices were also reviewed favorably for both safety and efficacy in multiple medical journals last quarter.

Shockwave's IVL solution has a large addressable market, but it's still currently working on gaining market acceptance and scaling the company. At this point, growth is the company's most important financial objective, and it has delivered so far in 2021. Shockwave impressed investors in August, and it was propelled forward as momentum swung toward growth stocks later in the month.

A patient in a hospital bed speaks to one doctor in person and another on a screen.

Image source: Getty Images.

Now what

Make no mistake: Shockwave Medical is a growth stock with fairly aggressive valuation ratios. The company still has not achieved profits, though it was very close to breakeven in the second quarter. The stock has a price-to-sales ratio above 60, and its forward P/E ratio is close to 180, based on consensus estimates for 2022.

Those conditions create risk and opportunity. Shockwave could follow the path to success blazed by many device companies in the past, and grow into its valuation. It could also be acquired by a larger company at a premium to current prices. However, there will be execution risk along the way from competition and regulation. The stock's valuation ratios also make it prone to more volatility if stock markets experience turmoil caused by rising interest rates or a new wave of COVID-19 restrictions. If you like the company and want to make a high-risk, high-reward investment, be ready for some ups and downs along the way.

Ryan Downie has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends ShockWave Medical. The Motley Fool has a disclosure policy.

Stocks Mentioned

ShockWave Medical Stock Quote
ShockWave Medical
$230.06 (-3.70%) $-8.85

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