Prudent investors have long known that health care spending will rise steadily regardless of the direction the economy as a whole is heading. It’s considered a defensive sector, but still contains stocks that can shoot through the roof under the right circumstances.
This year the stars aligned GeneDx Holdings (NASDAQ: WGS)a genetic testing specialist. The stock rose as much as 6,070% during the twelve-month period ending November 13. To put these gains into perspective: NvidiaThe legendary run of the past five years yielded a return of just 2,700%.
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Naturally, ordinary investors want to know whether genetic testing stocks can rise even further. Let’s take a look at the reasons why it has risen so far to find out if it deserves a spot in your portfolio.
In 2022, Sema4 acquired GeneDx, then a wholly owned subsidiary of Opko Health. Sema4 used artificial intelligence (AI) applications to build models of human health, and the addition of GeneDx’s genome and exome sequencing operation kicked the company into high gear.
When pediatric patients present with developmental disabilities, autism, or unexplained epilepsy, performing genetic testing to find out what the problem is becomes a standard practice. GeneDx can sequence a patient’s genome, which is a complete set of their genetic information. It can also sequence the much smaller part of the genome that codes for proteins, called the exome.
GeneDx recently reported third-quarter revenue that grew 44% year over year to $76.9 billion. Investors were happy to hear that the company’s new genome and exome sequencing operation is lucrative and now accounts for 78% of total revenue. Adjusted gross margin increased to 64.4% in the third quarter, compared to 50.7% in the prior year period.
GeneDx is still losing money under generally accepted accounting principles (GAAP). However, after adjusting for stock-based compensation, depreciation and other non-cash expenses, the company earned an adjusted $1.2 million in the third quarter.
When reporting third-quarter results, management raised the midpoint of full-year revenue guidance to $287 million. A few months earlier, the company forecast $260 million. In response to the increase in guidelines, Wells Fargo raised its price target for GeneDx from $34 to $75 per share.
Wells Fargo raised its price target but maintained an equal weight on the stock due to its steep valuation. The stock traded at about 7.5 times 2024 sales expectations. By comparison, America’s largest diagnostic companies, Quest diagnostics And LabCorpexchange for less than twice sales after twelve months.
