It's been a rough several months for TransMedics Group (TMDX 7.69%) shareholders. The stock has been beaten down by about 62% from the peak it set last August.
The company's warm perfusion devices are the only ones approved by the Food and Drug Administration (FDA) to transport and store multiple solid organs. TransMedics is also the only solid organ transport device maker with a fleet of jets dedicated to transporting donated organs.
NASDAQ: TMDX
Key Data Points
Unfortunately, TransMedics isn't the only company selling FDA-approved warm perfusion devices. Here's a look at what caused the company to forecast a sales slowdown to see if it could be a good stock to buy now.
Reasons for the rapid fall
At its peak last year, TransMedics stock traded for more than 150 times forward-looking earnings expectations. Stocks usually don't reach such a high multiple unless investors can expect rapid growth for years to come.
It's easy to see how the company set high expectations. Total revenue soared 159% to $241 million in 2023. Total sales soared another 83% in 2024, but the amazing growth might not last much longer.
Recently, TransMedics signaled an abrupt slowdown by announcing sales that grew by just 50% year over year during the fourth quarter of 2024. Management guided for further deceleration by predicting sales growth in a range between 20% and 25% for 2025.
At its peak, TransMedics Group was trading above 150 times forward-looking earnings expectations. Normally, sales guidance predicting growth of around 20% to 25% in a year would be a reason to cheer. However, the stock's nosebleed-inducing valuation implied growth at a much faster pace, so its price was hammered lower.
Reasons for the slowdown
Several years ago, there was a lot of low-hanging fruit in the solid organ storage and delivery space. Unfortunately for TransMedics Group investors, it's not the only company with next-generation organ storage devices approved by the FDA.
Paragonix manufactures ice-free cold storage devices for hearts, lungs, and kidneys, just to name a few. Its devices sync with digital services that clients or an internal team of organ transport specialists can use to coordinate logistics. This isn't the preferred method, but it is an available option that could limit TransMedics Group's pricing power.
In February, a privately held company in the U.K. called OrganOx raised $142 million to support the commercial launch of the OrganOx metra device. Like TransMedics' device, this is a normothermic machine perfusion system that is approved by the FDA to preserve livers donated after brain death (DBD) or after circulatory death (DCD).
TransMedics Group's organ care system (OCS) is the only one approved by the FDA to preserve multiple organs. Revenue from hearts and lungs is rising, but these organs aren't as much of a growth driver as livers. In 2024, liver transplants were responsible for 70% of total revenue.
Outside of the U.S., where OrganOx has a larger footprint, livers account for about 1% of TransMedics Group's sales. If OrganOx uses the capital it just raised to compete in the U.S. market as strongly as it competes abroad, TransMedics Group could suffer a significant revenue contraction.
Not a buy now
Despite the company's severe loss, the market still expects heaps of growth from TransMedics Group over the next few years. The stock has been trading for 44 times forward-looking earnings expectations.
If TransMedics raised prices on its OCS to compensate for its acquisition of Summit Aviation, OrganOx metra could look a lot more attractive to transplant centers than it did a couple of years ago. It's probably best to keep an eye on U.S. liver sales for at least a few more quarters to make sure that well-capitalized OrganOx can't compete in America's liver preservation space as well as it competes abroad.
