A little-known stock started to make a huge name for itself in 2024. That stock is GeneDX (NASDAQ: WGS). Through the course of 2024, this healthcare company increased its market capitalization from under $70 million to over $2 billion. That is a return of just under 2700%. What is just as interesting is that despite the stock’s massive run-up, multiple Wall Street analysts still believe there is upside.
Among four price targets tracked by MarketBeat since Oct. 2024, their average sits at $89.50 per share. Compared to the company’s Jan. 30 closing price of just under $78, that implies nearly 15% upside. The most recently updated target by analysts at TD Cowen is particularly bullish, sitting at $118. The research firm’s target, released on Jan. 7, indicates shares could still rise by 51%.
Below, I’ll detail what GeneDx’s products are and how the company makes money. I’ll also break down its stellar recent financials. Lastly, I’ll give my take on the prospects of the stock continuing to appreciate going forward.
GeneDx: A Different Genetic Testing Mouse-Trap
GeneDx went public via a reverse merger in 2021. At that time, markets knew the company as Sema4. Shares traded down massively, forcing the company to do some soul-searching and figure out how to establish investor confidence. In 2022, Sema4 acquired a genetic diagnostic testing company, GeneDx, which it changed its name to in 2023.
The company changed and narrowed its direction, focusing primarily on testing for rare diseases in children. The company’s test looks at the whole genomic code of a patient, rather than the majority of the industry, which only tests specific sections. This means the company’s test can identify problems others might miss. Also, because the company’s test looks at all genes at once, it can potentially diagnose problems much faster.
Targeted tests work somewhat through a process of elimination, dragging out the diagnosis until the right test hits the mark. In the case of rare diseases that aren’t well understood, this can make diagnosis take years. The company mainly generates revenue through selling these whole genetic testing services, most of which come from patients using private insurance.
GeneDx Financials: Shining on All Fronts
Shifting to this strategy has been a massive win for GeneDx. Despite getting rid of a large part of its legacy business, the company’s last 12 months of revenue have been the highest it has ever been at $267 million. It has also flipped its gross margin from deeply negative to strongly positive territory. In the final quarter of 2022, gross margin was -26%. The next quarter it more than inverted to a positive 35%. Now, the company’s adjusted gross margin sits at 64%. It has retired around 70% of its legacy testing menu to help make this happen. For the last three quarters, the company’s revenue from continuing operations has grown by over 50% from prior year quarters.
Revenues from its exome and genome testing, the main driver of the business, grew by 77% in each of the last two quarters. In Q1, the figure was 96%. Exome and genome testing volume, a key performance indicator, increased by 46% last quarter. The company has also massively decreased its cash burn by 88%; it only used $5 million in cash last quarter. This was the 10th straight quarter it reduced cash burn. With $117 million in cash, the company has a strong ability to continue its operations without needing to dilute shareholders. The company’s positive adjusted net income of $1.2 million may be the most notable metric last quarter. This marks the first time since its inception that the company has a quarter of positive operational cash flow.
Outlook on GeneDx
GeneDx sees a potential market opportunity of $25 billion in rare pediatric diseases. Adding in adults, the opportunity could increase to $45 billion. The company says only 12% of pediatric neurologists and specialists use its tests now. It holds an 80% market share among those users. Overall, the company may have penetrated less than 1% of its total long-term addressable market. Just looking at pediatric rare diseases, the figure is around 2%.
The company has a next-12-months price-to-sales ratio of 6.5x. This ranks lower than 35% of U.S. healthcare stocks, indicating that the market may not be overvaluing the company. The company has a large potential market. It leads in the areas it has entered and has greatly improved its profitability. Ultimately, there is significant reason to believe the company and stock could continue winning long-term.
