This has been an absolutely dismal year for growth stocks. The Vanguard Growth ETF has fallen about 33% over the past 12 months.

While times have been tough for most growth stocks, shares of TransMedics Group (TMDX 2.26%) have more than tripled in 2022. Investors reacted to exploding sales of its devices, and there are reasons to expect even stronger sales growth in 2023.

This might not be the flashiest stock out there, but it should be. It has a leading position in a healthcare niche ripe for disruption. Read on to see why I bought shares recently and will probably add more down the line.

A new standard

You probably know there are long waitlists for folks who need heart or lung transplants. Did you know that more than two-thirds of the organs harvested from deceased donors go unutilized? That's because simple cold storage is still the standard method for preserving solid organs awaiting a transplant procedure.

Instead of letting freshly harvested organs slowly die in a cooler packed with ice, TransMedics' organ care system (OCS) continually pumps them full of nutrient-rich blood to keep them in a living, functioning state. 

In the OCS Heart Expand trial, only 32% of donated hearts placed in cold storage were utilized compared to 81% of hearts placed in a TransMedics device. The TransMedics OCS is also approved to reanimate and monitor hearts that were donated after cardiac death (DCD). In a clinical trial, none of the DCD hearts kept in cold storage were utilized, but surgeons were willing to complete procedures 89% of the time when DCD hearts were kept fresh by TransMedics' OCS.

Using TransMedics' OCS doesn't just improve utilization, it also makes transplant procedures a lot more likely to succeed. In clinical trials with lung transplant patients, post-procedure complications fell by 50% for patients given an OCS-preserved organ.

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Image source: Getty Images.

A razor-and-blade business model with room to grow

TransMedics generally loans out its picnic-cooler-sized OCS consoles. Instead of trying to make money selling consoles, the company sells consumable gear that needs to be replaced before each procedure. In addition to providing consumable kits, the company's running an OCS program that includes transportation, logistics, and surgical retrieval of organs.

As a one-stop shop for transplant centers eager to boost their efficiency, demand for TransMedics' OCS is exploding right now. Third-quarter revenue soared by 25% compared to the second quarter and by 378% year over year. At an annualized $103 million, though, total revenue has a lot of room to grow.

Continual perfusion of transplantable organs isn't entirely new, but there aren't any devices besides TransMedics' OCS approved to preserve and transport multiple organs. The U.S. Food and Drug Administration (FDA) has granted approvals to the company's OCS for lung, heart, and liver procedures. There are a lot of folks waiting for these organs, but more patients are waiting for new kidneys than lungs, hearts, and livers combined. Towards the end of 2023, the company's OCS could add kidney preservation to its growing list of applications.

Worth the risk

Soaring sales led investors to push TransMedics' market cap up to around $1.9 billion at recent prices. That's kind of a lot for a company that has never generated positive earnings and lost $29.5 million in the first nine months of 2022.

TransMedics' revenue stream is growing so much faster than operating expenses that I believe the company can begin producing positive cash flows by the end of 2023. That said, the stock could fall a long way from its high perch if management shows us any signs of a slowdown in its next several quarterly reports. This stock is worth the risk it presents. Just make sure it's a relatively small part of a diversified portfolio.