Rising interest rates and fears of a recession have caused a great deal of uncertainty over the past 12 months. This explains why the Nasdaq Composite has dipped 13% during that time.
But there are plenty of growth-oriented companies whose stocks have outperformed the market amid this volatility -- for example, the genomic test maker Veracyte (VCYT 0.68%) has lost just 9% of its value in the last year.
But should growth investors buy the stock at this time? Let's dig into Veracyte's fundamentals and valuation to get an answer to that question.
Revenue is roaring higher
Diagnostic tests are critical to helping doctors and hospitals run the healthcare system as smoothly as possible. This is because accurate and timely diagnoses aid medical professionals in determining the best treatment options to potentially prevent a patient's medical condition from worsening.
That is what makes Veracyte's genomic tests crucial for diagnosing and treating various diseases, such as thyroid cancer, prostate cancer, breast cancer, lung cancer, and interstitial lung diseases. These tests measure the molecular profile of a variety of genes in a patient. This vital information can help patients avoid unnecessary, invasive, and expensive procedures to diagnose and treat a disease.
Veracyte's tests have been gaining acceptance. In last year's fourth quarter, revenue increased 19.2% over the year-ago period to $80.3 million. That was helped by test volume surging 25.6% higher to some 28,000 tests. In particular, Veracyte saw record sales for its Decipher prostate test and Afirma thyroid tests.
Decipher's volume grew to more than 12,000 tests during the quarter, according to CEO Marc Stapley. And with approximately 75% of men with prostate cancer not receiving a molecular diagnostic test, there is room for growth as the company works to expand insurance coverage for the product. Afirma's test volume topped 12,500 for the quarter as a result of growing acceptance among healthcare professionals. This is how Veracyte's total testing revenue soared 31.6% over the year-ago period to $70.3 million in the quarter.
Meanwhile, revenue from the company's product segment rose 17.2% year over year to $3.2 million as a result of higher test volume. This segment consists of revenue from Veracyte's ProSigna breast cancer assay test as well as its nCounter Analysis System that healthcare facilities use.
A third segment -- biopharmaceutical and other -- saw revenue slump 39.1% over the year-ago period to $6.8 million for the quarter. This segment offers customized biomarker testing to help biotech companies determine the potential response from patients with a particular biomarker for medicines in early stage clinical trials. This revenue source can swing sharply based on when Veracyte receives milestone payments on companion diagnostic products that it is developing with such partners as Johnson & Johnson (NYSE: JNJ).
Profitability remains a challenge -- for now
Despite strong revenue, the bottom line fell in the red with a $0.05 net loss per share in the fourth quarter. The company has not yet achieved consistent profitability, but once it eventually launches its tests for lymphoma and renal cancer, that should change. Analysts expect, on average, that the company's net-loss-per-share will improve from $0.55 in 2023 to just $0.02 in 2025. This suggests that Veracyte should begin turning a profit in the second half of the decade.
Image source: Getty Images.
A financially stable business and reasonable valuation
Despite the recent losses, Veracyte is a fundamentally robust company. Its net cash and short-term investments balance of $178.9 million is impressive. For context, this balance is approximately 10% of Veracyte's $1.7 billion market capitalization. Plus, the company has no outstanding long-term debt. This gives Veracyte the financial means to execute on its growth goals.
Veracyte looks to be sensibly valued at the current $24 share price. The stock's trailing-12-month price-to-sales ratio of 5.7 is slightly below its 10-year median of 5.9. Given that the company's fundamentals are arguably as strong now as they have been in the past, Veracyte could be an excellent stock for growth investors to pick up for their portfolios.
