MDXG - MiMedx's Post-Q1 2023 Surge Could Result In Profit-Taking

2023-05-06 05:25:23 ET

Summary

• Following the release of Q1 2023 results, MiMedx Group, Inc. shares are soaring on double-digit revenue growth and bottom line on track to turn a profit.
• MiMedx Group, Inc. is a Marietta, Georgia-based developer and distributor of placental tissue allografts.
• The company has launched new products recently that target additional surgical procedures and enable deeper market penetration in a fast-growing environment.
• After the earnings report for the first quarter of 2023, the share price is at overbought levels. Investors may wish to get some profit from the investment.

MiMedx Group, Inc. Stock After the Earnings Report Q1 2023

Shares of MiMedx Group, Inc. (MDXG) rose 39.4% to $5.31 a unit on Wednesday, May 3, after the Marietta, Georgia-based developer and distributor of placental tissue allografts announced the financial results for the first quarter of 2023 after market close on May 2.

Meanwhile, shares continued to rise and as of this writing on Friday, May 5, shares are trading at $5.53 per unit.

Placental membrane allografts have many uses in the healthcare industry but are commonly used to treat chronic wounds.

MiMedx Group reported a net loss of $0.06 per share, beating analyst consensus for a net loss of $0.09 per share, resulting in an upside surprise of 33.34%.

MiMedx Group reported revenue of $71.68 million, up 21.7% year-over-year and beating analysts' median forecast by $7.53 million.

Following Q1 2023 financial results, shares of MiMedx Group, Inc. are now trading significantly above the three long-term trends of the 200-day simple average line of $3.49, the 100-day simple moving average line of $3.67 and the 50-day simple moving average line of $3.77.

Shares have reached a peak not even far from the high of $5.55 per share that the stock price had in the last 52 weeks of trading. While the lowest price recorded during the period in question was $2.43, so the share price is now 110% above it.

Perhaps investors are considering taking advantage of the peak of the cycle and softening their positions a bit. At these levels, they should be able to make a decent margin.

Holding this stock - whose share price has experienced as many upswings as downswings in the past -- does not pay dividends. Plus, the technical metric of the 14-day relative strength indicator below suggests capitalizing on current levels as the support to go up further is not there anymore.

So rather than continue to hold so many shares in the position, investors may want to sell some as these stock prices should yield a notable return.

The 14-day RSI of 83.19x is a level signaling to sell as MiMedx Group, Inc. shares appear overbought (or overvalued).

Financial Results for the First Quarter of 2023

According to Joseph Capper, CEO of MIMEDX, Q1 2023 results demonstrate excellent execution, particularly leveraging the commercial footprint given the strong demand for placental membrane allografts.

MIMEDX sales performed very well, growing double-digit and recovering from the disruptions caused by the COVID-19 pandemic in 2022, despite a challenging competitive environment due to the presence of major players such as 3M Company ( MMM ), Johnson & Johnson ( JNJ ), B. Braun Melsungen AG and Zimmer Biomet Holdings, Inc. ( ZBH ).

Sales were driven by robust demand for MiMedx's new products in the Wound & Surgical end-market segment, as well as accelerated adoption of the company's technology in physician's private practices and initial sales of Epifix in Japan.

Epifix can heal a wide range of wounds and is indicated for chronic difficult-to-heal wounds caused for example by "diabetic foot ulcers, venous leg ulcers, arterial ulcers and pressure ulcers," reports the UK's National Institute for Health Care and Excellence.

Due to the aging population and increasing prevalence of diabetes and cardiovascular disease in modern society, chronic wounds are becoming more prevalent and are expected to drive demand for placental membrane transplants and advanced skincare therapies. This seems to be the trend according to MarketsandMarkets, as reported by GLOBE NEWSWIRE .

The development of hard-to-heal injuries is a global threat as the triggers such as obesity, excessive alcohol consumption and cigarette smoking plague modern society worldwide, leading to vascular diseases and diabetes.

In addition to these factors, MarketsandMarkets notes that healthcare providers seeking cost-effective solutions to ensure quality care and "increased awareness of the need for proper wound care" are also key demand drivers.

MarketsandMarkets forecasts that the advanced wound care market, estimated to be worth nearly $11.3 billion in revenue in 2022, is expected to grow at a compound annual growth rate of 9.4% over the next 5 years, reaching $17.7 billion in 2027.

Tattoo fashion could also turn into a growth market driver as skin repair technology could help reduce tissue scarring from tattoo removal surgeries and other techniques.

The North American region is expected to have a dominant share compared to the global market due to the presence of large conglomerates that also operate the business, but MIMEDX is managing to find its way very well and as the chart below shows, sales are gradually returning to pre-pandemic levels.

MiMedx Group, Inc. reported a gross profit of $59.3 million for the first quarter of 2023, representing year-over-year growth of 21%. This resulted in a gross margin of 82.7%, down slightly by 40 basis points from the year-ago quarter, likely due to inflationary pressures.

On a 12-month basis, however, the gross margin is not far from pre-pandemic levels, showing resilience despite a challenging environment characterized by expensive borrowing and high inflation.

The company has implemented a strategy to better control costs, which has not prevented operating expenses from increasing 7.4% year-over-year to $62.5 million in Q1 2023, mainly due to higher commissions on incremental sales, but the impact on the bottom line has been significant.

Net loss halved to $5 million in the first quarter of 2023, from $10.5 million in the same quarter last year.

While the Adjusted EBITDA showed a positive turn to $5.5 million in the first quarter of 2023 compared to the same quarter last year when Adjusted EBITDA was a loss of $1.7 million.

The Portfolio Now Has New Products

In late September 2022, MiMedx launched two new products, namely Axiofill and Amnioeffect, respectively consisting of a "human placenta-derived particulate extracellular matrix product" and a "thick human amnion, interlayer, and chorionic allograft", according to the company's website here and here .

Axiofill is used wherever it is necessary to replace skin tissue in the event of damage or to integrate insufficient skin tissue. MiMedx informs via GLOBE NEWSWIRE that "the existing market for xenograft products, including particulates, is estimated at $230 million" so the market size for Axiofill particulate could be a little less than $230 million.

Amnioeffect is a biocompatible product essentially sold in the form of a plate that surgeons can use in many clinical situations, from the lightest ones such as minimally invasive procedures to the much more complex ones such as amputations.

When Amnioeffect was announced, MiMedx also said through GLOBE NEWSWIRE that launching new products like Amnioeffect allows the company to "target additional surgical procedures and deepen market penetration in the growing $1 billion surgical recovery market", therefore providing a measure of the market size for the product.

The Financial Condition of MiMedx Group, Inc.

The company's financial position is not very solid but should gradually improve as sales are expected to continue growing at double-digit rates year after year, leading to better profitability margins if costs don't get out of control. The company expects continued market acceptance and robust demand for MiMedx Group products across all service locations and an increasing contribution from Epifix sales in Japan to drive significant revenue growth in the coming years.

The balance sheet as of March 31, 2023, showed cash and cash equivalents of $61.2 million against long-term debt of $48.714 million.

The debt resulted in interest expense of $1.553 million for the first quarter of 2023 or $6.212 million for the 12 months ended Q1 2023.

Thus, the interest coverage ratio, calculated as EBITDA on interest expense, is 3.54x for Q1 2023. This is a good measure of financial leverage, as anything over 1.5x means the company can pay interest costs on the outstanding debt, implying little or no risk of default.

Analysts from Seeking Alpha calculated an Altman z-score of 2.90, implying a risk of default but very small or unlikely given the strong outlook for the company's products and continued improvement in revenue with a strong likelihood to see margin up trending soon.

The Guidance

MiMedx Group says ,

"company has goals to achieve a Wound & Surgical segment contribution margin at or above 30% of segment net sales and corporate expenses as a percentage of sales below 20%."

The idea is to operate the business in two segments: the Wound & Surgical business segment and the Regenerative Medicine business segment, with the latter generating approximately $4 million in research and development costs in Q1 2023 related to the start of the company's clinical trials program in knee osteoarthritis called "koa".

The koa program is being developed by MiMedx with the contract research organization Nordic Bioscience Clinical Development, which specializes in osteoarthritis studies. MiMedx is developing its drug based on micronized dehydrated human amniotic chorionic membrane technology as a potential treatment aimed at slowing the progression of knee osteoarthritis.

MiMedx and Nordic Bioscience are engaged in Phase III clinical trials to confirm the benefit/safety profile of their biologic placenta treatment targeting watchdog approval as a therapy for the indication of knee osteoarthritis.

Wall Street Analysts' Estimates

Wall Street analysts expect MiMedx Group, Inc. to grow earnings from a net loss of $0.12 per share for the full year 2023 to a positive net income of $0.09 per share for the full year 2024 on higher sales.

Full-year 2023 revenue is expected to increase 13.57% year-on-year to $304.18 million and full-year 2024 revenue to increase 11.67% year-on-year to $339.68 million.

Based on these expectations, MiMedx Group has a forward PE of - 48.09x for 2023 and 65.06x for 2024, while the industry median is 27.42x .

MiMedx Group has FWD price/sales of 2.07x for 2023 and 1.86x for 2024 versus the industry median of 4.04x .

Conclusion

MiMedx Group, Inc. is a Marietta, Georgia-based developer and distributor of placental tissue allografts with a bright future ahead in terms of rapidly growing sales, margins on track to improve and supported by a moderately good financial position as reflected in its first quarter 2023 financial results.

While operating in a fast-growing market, the company is expanding its portfolio with products targeting additional surgical procedures and enabling deeper market penetration.

All of these factors will result in strong triggers for higher stock prices, but following the 2023 Q1 earnings report, the stock price is at overbought levels and perhaps investors should sell some shares to take advantage of the peak of the cycle.

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