So far, 2022 has been an awful year for the stock market. We've seen really bad inflation, and many investors think a recession is imminent. Nonetheless, some companies are reporting surprisingly strong numbers.
Here are three healthcare stocks that missed their guidance -- in the right direction! That's a happy day when management has to revise its estimates to account for outperformance. I'm talking about InMode (INMD -0.06%), Shockwave Medical (SWAV 0.10%), and Doximity (DOCS -2.73%).
1. InMode is a highly profitable company that is disrupting plastic surgery
The cosmetic surgery industry is a $50 billion market, and InMode is winning doctors over with its non-invasive solutions powered by radio frequency (RF) waves.
What's beautiful about this stock is that it's very similar to the Intuitive Surgical model. InMode sells its RF devices to cosmetic surgeons -- it's also expanding to other verticals, like gynecologists -- but it's not just a one-time sale. Every device creates recurring revenue streams for InMode. Once a medical practice buys one of the devices, and the doctors start using it, more money starts flowing to InMode every time the device is used. This is called "consumables" revenue and in Q1 it made up about 16% of the company's sales. That's a sweet business model, as any Intuitive Surgical investor can attest.
I love the idea of non-invasive plastic surgery, which to me translates as safer for patients. But what's truly remarkable is that this disruptor is already highly profitable, with 45% profit margins. And InMode has solid 30% revenue growth. The macro bear market has hit the stock price, with a lot of investors selling the stock in 2022. And yet the growth story is still intact -- so the multiples have been whacked, making a good stock a lot cheaper. The price-to-earnings ratio was 53 back in September; it's 12 now. The stock spiked last week as InMode pre-announced Q2 earnings on July 12 and raised its estimates for the year. Management now expects $435 million in sales in 2022.
2. The market loves Shockwave Medical right now
Doctors have long used sonic waves to destroy kidney stones. And the Shockwave team, in a beautiful example of lateral thinking, thought sonic waves might do the same thing to calcium deposits in human arteries. So the company patented the concept and created the devices.
It's been a huge winner. I've been following this company since 2019. I'm very bullish on this business, but I was scared to buy the stock. Oops, my mistake. The share price ran up almost 600% in less than two years.
Of course, the bear market has hit Shockwave a bit. That's why Shockwave stock is only up 19% over the last year. Still, in this market, that's a good return. And the med-tech pioneer continues to see astounding revenue growth. In Q1 it reported $93 million in revenue for the quarter, up 194% from a year ago.
Management is super-bullish about the opportunity in Japan, where its device recently received regulatory approval. CEO Doug Godshall estimates that Japan will be one of the company's dominant markets over time.
Godshall predicts that the "COVID whipsaws" will stabilize for healthcare providers later this year, and based on the Q1 numbers he's confident that Shockwave will continue to outperform. So he raised his sales guidance to $445 million for 2022.
3. Doximity -- my vote for the strongest company in the healthcare space
I love Doximity because it's an internet stock that is successfully transforming healthcare in the U.S. (a massive $4 trillion industry). Doximity is both a job-hunting site for doctors and other healthcare professionals, as well as a mecca for pharmaceutical companies that are trying to target physicians online.
By the time of its IPO last year, Doximity had already signed up the vast majority of doctors in the U.S. (80%), and even more medical students (90%) to its networking website. Those early wins gave the company a powerful moat. It's hard for any competitors to emerge, as the network effect keeps Doximity in the lead. Now the question is how much money Doximity is going to make as it monetizes all those medical eyeballs.
Probably the most exciting part of Doximity's future is Dialer. That's the company's telehealth solution for doctors and their patients. Here the company is using a freemium model: Give the service for free and then start charging for upgrades. I expect telehealth to be a major industry over time, and Doximity will be the big beneficiary of this trend.
Right now Doximity enjoys 45% profit margins and 40% year-over-year revenue growth. The company's return on investment (ROI) is outstanding. It's 10-to-1 for pharmaceutical companies and 14-to-1 for hospitals. And the company's net revenue retention rate is up to 157%, so it's making big gains among its existing customer base.
Doximity's fiscal year just ended. For 2023, the company raised its estimates from $450 million in revenue to $456 million. What's remarkable about this is that 95% of its guidance is based on subscriptions, renewals, and expanded services with existing clients. So only 5% of the guidance is based on finding new customers.
I see Doximity as one of the strongest stock opportunities in healthcare. As CEO Jeff Tangney put it, "we believe we'll become the physician cloud in the United States."
