TransMedics Group Inc (NASDAQ:TMDX) Emerges as a Prime GARP Candidate

For investors looking for growth without high cost, the "Affordable Growth" or Growth at a Reasonable Price (GARP) method provides a measured middle path. This method tries to find companies with good, lasting growth paths but whose shares are not priced too high. It tries to sidestep the high risk of costly momentum stocks while gaining from growing businesses. Screening tools can effectively find candidates by rating stocks on key fundamental areas: Growth, Valuation, Health, and Profitability. A stock such as TRANSMEDICS GROUP INC (NASDAQ:TMDX) recently appeared using such a filter, which needed high growth ratings combined with acceptable valuation, satisfactory profitability, and firm financial health.

A Focus on Strong Growth

The central idea of any growth method is, expectedly, growth. TransMedics does very well here, receiving a high Growth Rating of 8 out of 10 from ChartMill. The company's recent financial results highlight this.

• Very Strong Recent Performance: In the last year, TransMedics reported very high growth, with Earnings Per Share (EPS) rising by 162.77% and Revenue going up by 41.20%.
• Strong Historical Trend: Reviewing the last several years, the company has built a notable record, with Revenue increasing at an average yearly rate of almost 80%.
• Good Future Expectations: Analysts expect this progress to carry on, with predictions for yearly EPS growth of about 44.5% and Revenue growth of more than 21% in the next few years.

This mix of excellent past results and a good expected future is exactly what growth investors seek, offering a basis for possible share price gains.

Valuation in Context

The "affordable" or "reasonable price" part is what divides GARP from simple growth seeking. TransMedics shows a detailed valuation situation, receiving a medium Valuation Rating of 5. At first look, standard measures seem high: its Price-to-Earnings (P/E) ratio of 51.3 and Forward P/E of 43.2 are higher than the wider S&P 500 averages. Still, setting is important.

• Industry Comparison: Measured against similar companies in the Health Care Equipment & Supplies industry, TransMedics is valued more modestly. Its P/E ratio is lower than about 70% of the industry, and its Forward P/E is lower than over 71% of rivals.
• Growth Adjustment: The most informative measure for a growth stock is the PEG ratio, which modifies the P/E for predicted earnings growth. TransMedics has a low PEG ratio, indicating the current earnings multiple could be warranted, or even low, when its high growth rate is considered. Other valuation figures, like Enterprise Value to EBITDA and Price/Free Cash Flow, also show the stock is valued more favorably than most of its industry peers.

For the GARP method, this comparative valuation is central. It shows the market is compensating for growth, but not an extreme amount compared to similar companies, matching the aim of locating growth at a sensible price.

Supporting Fundamentals: Health and Profitability

Lasting growth cannot stand alone; it needs a steady financial base and the capacity to produce earnings. This is why filtering for satisfactory Health and Profitability ratings is essential to the Affordable Growth system. TransMedics' Health Rating is a firm 7, noted by very good liquidity. The company's Current Ratio of 7.69 and Quick Ratio of 7.13 are higher than almost 90% of its industry, showing a very good capacity to handle near-term needs. While the company has a somewhat significant amount of debt, its overall financial stability, as shown by the Altman-Z score, is not a problem.

The Profitability Rating of 5 reflects a company changing. After years of spending, TransMedics is now producing notable margins. Its Profit Margin of 16.2% and Return on Equity of 25.8% place in the best part of its industry. The "average" rating is mainly lowered by the company's past of negative earnings and cash flow as it expanded its innovative Organ Care System. The present high margins indicate the business has reached a size where profitability is becoming strong, a good change for growth investors.

Conclusion

TransMedics Group shows the traits sought by an Affordable Growth screen. It shows very strong and expected ongoing growth in an important medical technology area, which is the main driver for investment gains. Its valuation, while high on a pure basis, is sensible compared to its high-growth industry and when considering its growth rate through the PEG ratio. Also, its good balance sheet liquidity and rising, industry-top profitability supply a fundamental support that backs the growth story and lowers risk. This mix makes TMDX an interesting example for investors using a Growth at a Reasonable Price method.

Find More Affordable Growth Stocks The hunt for good growth stocks at sensible valuations continues. You can review a live screen using similar rules to locate other possible candidates by visiting the Affordable Growth Stock Screener on ChartMill.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The analysis is based on data provided and fundamental scoring models. Investors should conduct their own thorough research and consider their individual financial circumstances and risk tolerance before making any investment decisions. Past performance is not indicative of future results.