2022 has been rough for many previous market darlings. Investors have moved to higher ground, deserting growth stocks in exchange for large, stable companies. However, savvy healthcare investors should treat this pullback as a buying opportunity. We'll look at two healthcare stocks that could go parabolic thanks to continued, strong growth.
1. Invitae
Maker of genetic testing kits for a multitude of rare diseases across multiple medical specialties -- from ophthalmology to nephrology, and most organ systems in between -- Invitae (NVTA 106.67%) has been hit hard lately. And while some of that can be attributed to dilution, its ramping revenue should squash those concerns.
Invitae has ridden the personalized medicine wave and is firing on all cylinders. Fiscal 2021 revenue for its four core service lines have all roughly doubled over 2019 numbers.
Its data services segment, which assists pharmaceutical companies with looking for patients with specific disease variants or other natural histories that can aid in the delivery of personalized medicine, increased from $15 million to $39 million. Its women's health testing line nearly tripled from $28 million to $83 million, while its rare diseases product lines increased from $31 million to $57 million.
And finally, its oncology testing market increased from $143 million to $281 million. While cancer testing was 61% of its 2021 sales, that is actually a decrease from 66% in 2019. With four unique and blossoming business lines, Invitae boasts a more diversified portfolio than Guardant Health or Exact Sciences, which are solely focused on the oncology market.
Despite guiding for 40% revenue growth in 2022 -- on top of already fantastic growth -- the stock has been in the toilet. It has slid over 65% year to date, including a massive 90% dive from its December 2020 all-time highs of around $56 a share. And while dilution may have caused some of this, the shares look to be a shockingly good deal.
Fears of cash burn were extinguished by management on its fourth-quarter 2021 conference call; the company is planning for cash burn of $600 million to $650 million for the year on revenue of approximately $640 million. And since it ended the year with $1.06 billion in cash as well as aspirations to improve gross margins from 36% at the end of 2021 to 45% by year's end, the company seems to have a shot at being profitable by 2023, if not by year's end.
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Invitae seems to be on sale compared to its peers, too, in light of 40% projected revenue growth in 2022 and price-to-sales (P/S) ratio of just over 2. By contrast, oncology-focused Guardant Health is guiding for 23% to 26% revenue growth and has a P/S ratio of just over 15. Or consider industry giant Johnson & Johnson, which is trading at a P/S ratio of around five!
With such balanced growth at rock-bottom prices, barring an utter collapse of revenue, it's hard not to see a significant rebound for Invitae shareholders from here.
2. Figs
Direct-to-consumer healthcare apparel and lifestyle brand Figs (FIGS -0.63%) is poised for a comeback too. With the shares down 50% since their May 2021 initial public offering -- and 40% just year to date -- I'm not sure how much longer the market can ignore the growth story of this socially conscious company.
For fiscal 2022, Figs is guiding for 32% revenue growth of $550 million to $560 million and an enviable gross margin of 69.9%. Compare this to Wall Street darling Lululemon, which is guiding for 24% to 26% sales growth with margins at 58.1%. With less growth and lower margins, Lululemon is trading at a P/S ratio of about 8, compared to a P/S ratio of 6.5 for the healthcare apparel company.
Any concerns that Figs is a fad are likely overblown. It enjoys a net promoter score of 81, suggesting customers will not only keep coming back but also enthusiastically recommend the apparel to others.
In general, socially conscious companies like Figs can reduce portfolio risk and generate competitive investment returns. In its 2021 impact report, the company clearly lives its mission statement: "to celebrate, empower and serve those who serve others." From apparel and monetary donations to loan repayments for students across the spectrum of medical professions -- from nursing to veterinary to dental -- I applaud the company for its all-encompassing focus on its mission statement.
It also has a strong diversity advantage, with over 70% of its team identifying as female or nonbinary and more than half identifying as an underrepresented minority. Plus, it is the first company ever with two female co-CEOs, along with a female CFO, who have taken a company public.
Fighting for the individual, Figs was also the first company to ever partner with Robinhood to open up its IPO to retail shareholders. To say this is a groundbreaking and progressive company is an understatement. Between its loyal fanbase, social consciousness, growing revenue, and attractive valuation, I can easily see Figs' chart going up and to the right over time.
