TransMedics Group Inc (NASDAQ:TMDX): A Prime Example of Affordable Growth Investing

Growth investing typically focuses on companies with notable revenue and earnings increases, though prices can rise too high in popular stocks. The "Affordable Growth" method balances these elements by selecting stocks with strong growth indicators and fair prices, good profitability, and stable finances. This method prevents paying too much for growth while still gaining exposure to firms with promising expansion potential.

TransMedics Group Inc (NASDAQ:TMDX) appears to match this strategy, as seen in its fundamental analysis report. Next, we review how the company meets the core principles of Affordable Growth investing.

Growth: Strong Performance

The company’s growth stands out, receiving a ChartMill Growth Rating of 8/10. Key points include:

• Significant Earnings Growth: Over the last year, earnings per share (EPS) rose by 4,725%, marking a major shift in profitability.
• Revenue Growth: Sales increased 48.09% year-over-year, with a five-year compound annual growth rate (CAGR) of 79.64%, showing steady top-line growth.
• Future Outlook: Analysts forecast annual EPS growth of 49.75%, along with a 21.08% expected revenue CAGR, pointing to ongoing solid performance.

For growth-focused investors, these figures highlight a company expanding quickly, a key part of the Affordable Growth strategy.

Valuation: Fair for Growth

Though not cheap, TMDX’s valuation (ChartMill Rating: 5/10) seems fair compared to its growth path:

• P/E Ratio (65.15): While high, it is lower than 65% of industry peers, many of which have higher multiples.
• PEG Ratio: The low PEG ratio, which includes earnings growth, implies the stock is priced fairly given its expansion potential.
• Enterprise Value/EBITDA: TMDX is priced below 66% of competitors, showing relative affordability in its sector.

This mix of growth and valuation fits the Affordable Growth approach, where investors look for growth without overpaying.

Profitability & Financial Health: Areas to Watch

While not outstanding, TMDX’s profitability (5/10) and financial health (6/10) show no major concerns:

• Healthy Margins: Operating margin (14.41%) and profit margin (13.49%) exceed 80-90% of peers, reflecting efficient operations.
• Liquidity: Current and quick ratios near 9-10x suggest strong short-term liquidity, lowering near-term solvency risks.
• Debt Issues: A high debt-to-equity ratio (1.61) and long debt/FCF repayment period (29.44 years) are weaknesses, though balanced by solid cash reserves.

These factors meet the strategy’s need for "decent" profitability and health, ensuring the company maintains stability while growing.

Why This Fits Affordable Growth Investing

The Affordable Growth screen favors companies like TMDX because they provide:

1. Consistent Growth: High revenue and earnings growth confirm the business model.
2. Fair Pricing: Avoiding extreme multiples lowers risk if growth slows.
3. Operational Strength: Adequate profitability and liquidity help manage volatility.

While TMDX has risks, particularly its debt, its growth path and fair valuation make it a strong option for investors seeking a balanced approach to growth opportunities.

For more Affordable Growth stock ideas, see the full screen here.

Disclaimer: This analysis is not investment advice. Investors should conduct their own research or consult a financial advisor before making decisions.