As painful as market volatility can be, investors can leverage this to their advantage. The Nasdaq Composite is loaded with growth-oriented stocks. And while this has been a good place to be for the last decade-plus, growth stocks have had no place to hide in 2022 with surging interest rates and recession fears. This is why the Nasdaq has plunged 35% year to date.
Shares of the small-cap medtech company known as AngioDynamics (ANGO -2.96%) have fared even worse -- down a whopping 55% in 2022. But a major recovery could be on the way for the stock in the new year. Here's why.
Disruptions to the business will eventually clear
AngioDynamics isn't a household name to most investors. But with hundreds of patents in its portfolio of medical devices focused on treating peripheral vascular disease and a variety of cancers, the company is growing in recognition among healthcare professionals. The company is split into two segments: the medical devices segment and the medtech segment.
As with other medical device makers like Medtronic, AngioDynamics has faced its share of headwinds with the onset of the COVID-19 pandemic nearly three years ago. This has resulted in delays of elective procedures (how AngioDynamics generates its net sales) as hospitals prioritize treating COVID-positive patients. This explains why growth in the medical devices segment has been minimal in recent quarters.
But the good news is that, even with these challenges, the medtech segment is routinely posting net sales growth of around 30% and becoming a growing share of AngioDynamics' net sales. And as the company expands its addressable market from $5.5 billion this fiscal year (2023) to $8 billion by fiscal year 2025, net sales should benefit.
To top it all off, the company's predominant medical devices segment could revert to 1% to 3% net sales growth as soon as 2024. This is because public health experts believe that COVID will become endemic by that time, which could mean far fewer delays of elective procedures to manage outbreaks of the virus. That's why analysts believe that AngioDynamics' net sales will grow at more than 8% annually this fiscal year and next fiscal year.
The company is financially healthy
AngioDynamics' solid growth prospects are encouraging. But what makes it an even better bet is its financial positioning.
The company's net debt balance is just under $25 million. And with a $75 million credit facility at its disposal, this gives AngioDynamics the needed capital to release more indications for its AlphaVac System for blood clots and NanoKnife advanced and inoperable cancer treatment.
A favorable risk/reward slant
AngioDynamics is a steadily growing business. And the valuation appears to be an especially attractive proposition for growth investors.
AngioDynamics shares trade at a price-to-sales ratio of 1.5, and sales are likely to compound at a high-single-digit percentage clip that for the foreseeable future. Even taking into consideration that the company won't turn a profit until next fiscal year, this is a bargain-bin valuation. This is precisely why analysts have an average 12-month price target of nearly $26 for AngioDynamics' stock, which is a 92% upside from the current $13 share price.
Some downside could still be ahead as COVID continues to weigh on the company's fundamentals. But with the prospects of such massive upside, the risk-to-reward ratio is skewed in favor of investors at this valuation. This makes AngioDynamics an interesting buy for growth investors for 2023.