Natan's Notes #12: I bought more TMDX
Welcome to Natan's Notes! A quick weekly update on the stocks that I cover, the opportunities I’m exploring, and the thinking behind my portfolio allocation.
Here’s what’s on deck this week:
Here’s why I believe TransMedics is deeply undervalued
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Here’s why I believe TransMedics is deeply undervalued
Happy Friday, everyone. In this short note, I’ll explain why I’ve further increased my position in TransMedics, which now accounts for roughly 16% of my portfolio.
For background on the company’s business model, I’d point you to a previous note where I first introduced TransMedics.
Over the past few months, TransMedics shares have remained highly volatile, and I’ve taken advantage of what I consider very attractive price levels to increase my position several times.
Most recently, the stock dropped from $140 to $105, largely due to the typical Q3 seasonal weakness and some competitor-related headlines that, in reality, have no impact on TransMedics’ operations.
One competitor in particular, OrganOx, was recently acquired by Terumo, a Japanese medical device company, for $1.5 billion, equivalent to more than 20x sales.
This week, there were two analyst events in which TransMedics’ CEO reiterated the company’s outlook. His tone was extremely positive, and he even acknowledged that his recent insider purchase was driven by his belief that the company remains significantly undervalued relative to its growth potential.
“It proves how undervalued TransMedics stock is today and justifies the investments I made personally in the TransMedics stock.”
Waleed also urged shareholders to focus on the long-term trajectory of the business rather than short-term quarterly swings or daily volatility.
“Listen, if you're going to focus on every month-to-month variability, quarter-to-quarter variability in organ transplant, you should not hold TransMedics stock. Seriously, it's about looking at the long term. Look at TransMedics at 20,000 or 30,000 organs under our wing in the U.S. alone and doubling that worldwide.”
While those fluctuations can help monitor the company’s progress, they shouldn’t become an obsession. What truly matters is where the business will be five or ten years from now, at least for a long-term oriented investor like myself.
I’d like to conclude with a simple point regarding TransMedics’ valuation. Looking at price-to-sales multiples, the company currently trades at levels comparable to the big MedTech players.
The key difference is that while those companies typically grow revenues at 10–15%, TransMedics is expected to grow at least 30%. And if the long-term projections prove accurate, a 20% CAGR could easily continue for another five years.
Moreover, in the most recent quarter, TransMedics has already demonstrated strong profitability, despite its smaller scale, with a net margin of 20%, which is higher than that of some of its far more established peers included in my comparison.
This suggests that TMDX not only has room to expand margins further but could even exceed its own long-term guidance of a 30% operating margin.
If you’d like to see my 5-year valuation model, you can find it on my Twitter profile at this link.
There, you’ll see why I believe TransMedics has the potential to surpass $200 by 2026, a significant upside from today’s $115–$120 levels, and one of the most compelling risk/reward setups in the current market. Not surprisingly, it’s my second-largest position.
That’s all for today, thanks for reading, and I’ll be back next week!
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Disclaimer: The information provided in this article is based on my research and is for informational purposes only. It should not be construed as financial advice. Please conduct your research before making any financial decisions. The author is not responsible for any financial losses or damages incurred as a result of following the information presented in this article.