Shares of ShockWave Medical (SWAV 0.97%) recently shot up in response to better-than-expected results from the second quarter. If this outsized gain has you wondering about the future of this under-the-radar stock, you're not alone.
Before looking at what's next for ShockWave Medical, we need to understand why it's been outperforming most healthcare stocks all year.
Business is booming
ShockWave Medical is an innovative leader changing the way surgeons treat calcified arteries. As the name implies, this company's devices employ powerful sound waves that can break up calcified plaques that would otherwise limit blood flow.
Shares of ShockWave surged on Aug. 9 in response to a second-quarter earnings report that blasted past consensus expectations. Top-line revenue soared 116% year over year to reach $121 million, and operating expenses grew just 61% over the same time frame.
Investors were also encouraged by an expanding gross margin driven by rapidly increasing sales of a cardiovascular device the FDA cleared in early 2021. Widening margins allowed the company to earn $26 million in the second quarter compared to a minor loss in the previous-year period.
Demand for ShockWave's products is so strong that the company had to raise its revenue projection for the year. Instead of between $435 million and $455 million as announced in May, the company expects revenue to land between $465 million and $475 million.
Hitting the top end of ShockWave's new guided range for top-line revenue would translate to a 100% sales increase year over year. Despite strong growth already, this stock could keep climbing over the long run. The company is still just scraping the surface of a total addressable market that management thinks is worth about $8.5 billion annually.
It's just a matter of time before intravascular lithotripsy becomes standard practice for the treatment of cardiovascular disease with a calcification component. A recent study involving peripheral arteries found that patients treated with ShockWave's devices were 77% less likely to report torn arteries compared to standard angioplasty, and 75% less likely to require a stent.
A smart buy now
I'm not the first analyst to notice good reasons to expect strong growth from ShockWave Medical in the years ahead. The stock is trading at 22.7 times the company's sales expectations for this year.
Strengthening sales in China's enormous market for hardened artery solutions could help the company grow into its sky-high valuation. In May, the company received approval from Chinese regulators to market and sell its most popular devices for treating coronary and peripheral arteries.
ShockWave Medical also anticipates reimbursement from Japan to begin in December. With China and Japan contributing to total revenue, sales could keep exploding higher in 2023 and for many more years to come.
There are no guarantees that Shockwave's proprietary calcium-busting devices will continue becoming standard care for treating calcified arteries all over the world. Without any serious competition on the horizon, though, the company has a good chance to grow into its enthusiastic valuation. That makes it a great stock for patient investors to buy now and hold for the long run.