Summary
- Guardant Health has continued a revenue increase as showcased in the last earnings report, growing 17% YoY.
- GH stock is part of a large industry that has high CAGR estimates, but investors are yet to see this same pace kept up by the company.
- With less growth than the industry and a high valuation compared to its peers, the buy case is slim, and a hold rating seems more fitting.
Investment Summary
Guardant Health's (GH) balance sheet shows a decrease in cash and cash equivalents compared to the previous year but an increase in short-term marketable debt securities, which could indicate a shift in the company's investment strategy. The company's profitability has increased, with both operating margins and net margins improving over the past year. However, there are some risks to the company, including increasing competition, regulatory risks, and potential supply chain disruptions.
In terms of valuation, Guardant Health appears to be trading at a premium compared to its peers in the industry. While the company has strong growth prospects, investors should carefully consider the potential risks before making an investment decision.
In summary, Guardant Health is a company with promising growth prospects in the precision oncology industry. While there are some risks to the company, its financial performance and potential for future growth make it an interesting investment opportunity. However, investors should also be aware of the company's premium valuation compared to its peers. Given the limited upside potential, a hold rating seems the most fitting.
Company Overview
Guardant Health Inc. is a healthcare company that specializes in precision oncology testing and the development of liquid biopsy tests. The company was founded in 2011 and is headquartered in Redwood City, California.
The core product is the Guardant360 liquid biopsy test, which provides non-invasive genomic profiling of solid tumors using a blood sample. The test helps oncologists to select the best therapy for their patients by identifying genomic alterations that are driving cancer. The company also offers the GuardantOMNI test, which covers a broader range of genomic alterations, and the GuardantINFORM test, which provides real-time monitoring of treatment response.
Guardant Health's liquid biopsy tests are designed to improve cancer treatment by providing more accurate and comprehensive genomic profiling than traditional tissue-based biopsies. The tests can also help to monitor treatment response and detect the emergence of resistance mutations.
Focusing on precision oncology and a commitment to innovation and excellence, Guardant Health is well-positioned to continue its growth and expansion in the healthcare industry. The company's liquid biopsy tests have the potential to transform cancer treatment and improve patient outcomes.
Revenue Breakdown
Guardant Health's fourth quarter and full year 2022 financial highlights demonstrate the company's continued growth in revenue and test volume, indicating a positive outlook for the precision oncology company. In the fourth quarter of 2022, Guardant Health reported revenue of $126.9 million, a 17% increase over the fourth quarter of 2021. The company reported 36,000 tests to clinical customers and 8,200 tests to biopharmaceutical customers in the fourth quarter, representing a significant increase of 41% and 24%, respectively, over the fourth quarter of 2021. In the full year 2022, Guardant Health reported revenue of $449.5 million, a 20% increase over the full year 2021. The company also reported 124,800 tests to clinical customers and 26,000 tests to biopharmaceutical customers in the full year 2022, representing an increase of 42% and 40%, respectively, over the full year 2021.
Income Statement (Earnings Report)
Guardant Health's recent highlights also demonstrate the company's focus on innovation and expansion. The pivotal ECLIPSE study evaluating Shield for colorectal cancer detection demonstrated an 83% sensitivity and 90% specificity, indicating the potential for increased accuracy in cancer detection. The FDA approval for Guardant360 CDx as a companion diagnostic for ORSERDU for the treatment of patients with ESR1 mutations in ER+, HER2- advanced, or metastatic breast cancer provides further opportunities for the company to expand its market. Additionally, obtaining coverage for Guardant360 CDx tests in lung and breast cancer from United Healthcare and introducing the Guardant Galaxy suite of advanced AI analytics in partnership with Lunit shows the company's commitment to providing better cancer tests and treatment options.
Furthermore, the precision oncology market is expected to grow at a compound annual growth rate CAGR of 11.7% from 2021 to 2028, according to Grand View Research. The increasing prevalence of cancer worldwide, rising demand for personalized medicine, and advancements in genomic sequencing technologies are some of the factors driving the market growth. Guardant Health's focus on precision oncology and commitment to innovation in cancer testing and treatment makes it well-positioned to take advantage of this growing market.
In conclusion, Guardant Health's recent financial and operational highlights, along with the positive outlook for the precision oncology industry, make it an attractive investment opportunity for investors interested in the healthcare and biotech sectors. However, investors should note that the company faces significant competition from other precision oncology companies and should carefully consider the potential risks associated with investing in a rapidly-evolving industry.
Market Tailwinds
Guardant Health is well-positioned in the growing field of liquid biopsy, which is expected to be a key driver of the cancer diagnostics market in the coming years. The company has demonstrated impressive growth and has a proven track record of successful commercialization of its products, making it an attractive investment option for those looking to tap into this market.
According to a report by Grand View Research , the global liquid biopsy market size is expected to reach USD 6.5 billion by 2028, growing at a CAGR of 23.5% from 2021 to 2028. The report notes that the "increasing prevalence of cancer, growing preference for non-invasive procedures, and rising demand for personalized medicine are expected to drive the growth of the market.
Market Outlook (Grand View Research)
Guardant Health's CEO, Helmy Eltoukhy, spoke to these trends in the company's Q3 2021 earnings call, stating that "the adoption of liquid biopsy continues to grow rapidly, and we are seeing broad adoption of our tests across all stages of the cancer care continuum." He also highlighted the company's increasing traction in international markets, stating that "we are seeing strong momentum in Asia, Europe, and other international markets."
Guardant Health's liquid biopsy products have demonstrated the clinical utility and have been validated in numerous studies. In a recent publication in the Journal of Clinical Oncology, the company's Guardant360 test was found to have a positive predictive value of 95% in detecting actionable mutations in advanced cancer patients.
2023 Guidance (Earnings Report)
Overall, Guardant Health is well-positioned to capitalize on the tailwinds in the liquid biopsy market and the increasing demand for personalized medicine. The company's innovative products, proven track record, and strong international presence make it an attractive investment option for those looking to tap into the growing field of cancer diagnostics.
The Company's Profitability
The company's condensed consolidated balance sheet for December 31, 2022, reveals that the company's total assets amount to $1.61 billion, with current assets accounting for 74% of this amount. The company's current assets include cash and cash equivalents of $141.6 million, short-term marketable debt securities of $869.6 million, accounts receivable of $97.3 million, inventory of $51.6 million, and prepaid expenses and other current assets of $31.5 million.
The company's long-term marketable debt securities amount to $0, and its total liabilities amount to $1.55 billion, with current liabilities accounting for 12% of this amount. The company's current liabilities include accounts payable and accrued liabilities of $175.8 million, deferred revenue of $17.4 million, and noncontrolling interest liability of $0.
The company's stockholders' equity amounts to $60.2 million, with common stock, additional paid-in capital, accumulated other comprehensive loss, and accumulated deficit accounting for $1, $1.74 billion, $-19.5 million, and $-1.66 billion, respectively.
In terms of margins, Guardant Health's gross profit margin was 47% in 2022, compared to 53% in 2021. The decrease in gross margin was primarily due to higher laboratory services costs associated with increased sample volume and the launch of new products.
Despite the decrease in profitability, Guardant Health continues to invest heavily in research and development to develop new products and services. The company believes that these investments will drive future growth and improve profitability in the long term.
In terms of financial ratios, two important metrics to consider are returns on assets (ROA) and return on capital ((ROC)). ROA measures how efficiently a company uses its assets to generate profits, while ROC measures how efficiently a company uses its capital (both debt and equity) to generate profits. Based on the information provided, it is not possible to calculate these ratios, as we would need additional information on the company's income statement and the breakdown of its assets and liabilities.
In summary, the balance sheet of Guardant Health, Inc. shows a strong current asset position, with significant cash and short-term marketable debt securities. The company's liabilities are mostly long-term debt, and its stockholders' equity is relatively small. However, without further information on the company's income statement and the breakdown of its assets and liabilities, it is difficult to fully evaluate the company's profitability and financial performance.
Risks
There are several risks that Guardant Health Inc. may face in the near future. One of the primary concerns is the intense competition within the liquid biopsy market. As more companies enter the space, it could lead to increased pricing pressure and lower margins for Guardant Health. Additionally, there is a risk that some of the company's key customers may choose to develop their own liquid biopsy solutions, which could negatively impact Guardant Health's market share.
Another risk is related to the regulatory environment. The FDA has recently increased its scrutiny of liquid biopsy products and companies, which could lead to delays in product approvals or additional regulatory requirements. This could negatively impact Guardant Health's ability to bring new products to market or expand into new markets.
Valuation And Conclusion
In conclusion, Guardant Health, Inc. has shown strong financial performance in recent years with significant revenue growth and improving profitability. The company's balance sheet also indicates a healthy liquidity position with a large cash reserve and a manageable debt load.
However, there are also some risks that investors should consider, such as the potential for increasing competition and regulatory risks in the healthcare industry. Additionally, Guardant Health operates in a rapidly evolving market, which can be challenging to predict and navigate.
When considering valuation, Guardant Health appears to be trading at a premium compared to its peers. As of February 21, 2023, the company's price-to-sales ratio stands at around 30, which is significantly higher than the industry average of 7.6. This suggests that the market may have already priced in the company's growth potential, leaving little room for further upside. But with a stable company like Guardant Health, I believe it still deserves a hold rating instead of a sell.
For further details see:
Guardant Health: Don't Expect Rapid Growth