Due to the current economic factors in play, mutual fund manager Vanguard expects the U.S. economy to grow by just 1.5% in 2022. For context, this is down significantly from its previous forecast of 3.5% GDP growth for this year.
The less optimistic growth outlook has heavily weighed on growth-oriented stocks. The tech-heavy Nasdaq Composite has dropped 27% so far this year. And the small-cap medical device stock AngioDynamics (ANGO 2.12%) hasn't fared too much better -- down 24% in 2022.
But does that make the cancer diagnosis/treatment and peripheral vascular disease device stock a buy for growth investors? Let's take a look at its fundamentals and valuation to decide.
Another quarter, another net sales and earnings beat
Earlier this month, AngioDynamics shared its financial results for the fourth quarter ended May 31. The Latham, New York-based medical device company topped both the analyst consensus for net sales and non-GAAP (adjusted) diluted earnings per share (EPS) in the quarter.
AngioDynamics reported $87 million in net sales during the fourth quarter, which is equivalent to a 13.2% growth rate over the year-ago period. This easily surpassed the average analyst net sales prediction of $82.9 million for the quarter. How did the company exceed analysts' net sales expectations for the seventh quarter out of the past 10 quarters?
Once again, the engine of AngioDynamics' impressive net sales growth was its med tech segment. The products within this segment include a minimally invasive treatment for metastatic and inoperable cancers called the NanoKnife, a peripheral artery disease treatment known as Auryon, and a device that treats blood clots named the AlphaVac System. The segment's net sales spiked 40% higher than the year-ago period to $22.6 million in the fourth quarter. This contributed to 63.4% of AngioDynamics' net sales growth for the quarter.
The remaining share of the company's net sales growth was derived from the med device segment. Improved manufacturing capacity led AngioDynamics' med device segment net sales to increase 6.1% year-over-year to $64.4 million in the fourth quarter.
The company recorded $0.01 in adjusted diluted EPS during the quarter, which was up from the prior-year period adjusted loss per share of $0.00. This came in above the analyst-adjusted diluted EPS estimate of $0.007 for the quarter, and it represented the ninth quarter out of the last 10 quarters that AngioDynamics matched or outperformed the analyst earnings consensus.
The company's manufacturing capacity was more than 40% above the lows that it experienced in December, which is evidence that AngioDynamics overcame supply chain interruptions in the quarter.
A healthy balance sheet and positive free cash flow
AngioDynamics' future hinges largely on its balance sheet. That's because it ultimately takes liquidity to fund clinical research and launch new and competitive products to expand a company's total addressable markets.
Fortunately, AngioDynamics' net cash and cash equivalents (cash and cash equivalents less the current portion of long-term debt) swung from a negative $1.1 million as of February 28 to a positive $3.8 million as of May 31. This was due to $7.5 million in free cash flow generated during the fourth quarter, which was partially offset by an additional $2.7 million in investment in the placement of Auryon units.
The company's net cash position and free cash flow should allow it to execute on its planned product launches in the years ahead, like new indications for its NanoKnife product and AlphaVac System. This is why AngioDynamics believes that its total addressable market in the U.S. will nearly triple from $3 billion in fiscal year 2021 to $8 billion by fiscal year 2025.
The valuation looks ripe for investment
AngioDynamics appears to be well-positioned for the future. Analysts are expecting 8.9% and 8.3% net sales growth in fiscal years 2023 and 2024, respectively. Yet AngioDynamics is currently valued at a forward price-to-sales of 2.5. For a stock with high-single-digit annual net sales growth in its future, this is an attractive valuation for growth investors.