Since the beginning of 2022, innovative growth stocks from every corner of the economy have been under a lot of pressure. The growth-stock-heavy Nasdaq Composite index collapsed a terrifying 33.1% last year, and many of its components are still way below their former high water marks.
This turmoil has prevented most everyday investors from putting their money to work in the stock market, which is a mistake. Every bear market in history has been wiped away by subsequent recoveries.
The next bull market may have already started last October, or it might not start for another year. Either way, buying shares of great businesses now, while they’re trading at depressed prices, gives you a very good chance to come out way ahead over the long run.
One outstanding growth stock that deserves more attention from everyday investors is a niche medical-device manufacturer called Shockwave Medical (SWAV -5.80%). Its shares are down around 35.8% from the peak they reached last summer. Here’s why it looks like one of the best buys you can make right now.
A big improvement
Shockwave develops and manufactures catheters that cardiovascular surgeons use to break up calcium deposits that can stiffen and block arteries. This condition is a lot more common than you may realize. Calcification of the coronary arteries that feed the heart can be found in over 78% of adults over 70 years of age.
Shockwave’s intravascular lithotripsy (IVL) devices slide into blocked arteries where they transmit high-amplitude sonic pressure waves that break up calcium deposits. This is similar to the method providers have used for decades to pulverize kidney stones.
Surgery to open a blocked coronary artery generally involves an angioplasty balloon that stretches the artery from the inside out followed by a stent that holds it open permanently. Softening a hardened artery with sound waves before stretching that artery with an angioplasty balloon greatly increases the odds of a successful procedure. During a study with 60 severe coronary artery calcification patients, surgeons were able to deliver a stent every time without any dissections or perforations.
Soaring sales now and room to grow further
With a safer method for performing fairly common procedures, Shockwave’s devices are flying off the shelves. During the fourth quarter of 2022, the company reported revenue that soared 71% year over year to $144 million.
Management is predicting a sales deceleration in 2023, but it’s hardly anything to complain about. The guidance provided suggests top-line growth of between 35% and 39% this year.
There are no guarantees, but a lack of competing devices suggests Shockwave will have the IVL market all to itself for many years to come. At the moment, the company is targeting procedures that are performed often enough to drive $8.5 billion in top-line sales. That’s more than 17 times the amount of revenue the company recorded in 2022.
A large addressable market isn’t any good to investors if the company can’t sell its products at a significant profit. Products that appear to be selling themselves make this look like an outstanding stock to buy now and hold over the long run.
Sales growth has outpaced sales and marketing expenses by a mile ever since the FDA approved Shockwave’s C2 coronary device in February of 2021. Its successor, called C2+, is expected to launch in the U.S. in the second half of 2023. With its ability to apply 50% more pulses to a target, I won’t be surprised if management raises forward-looking revenue guidance later this year.
Shockwave isn’t stopping with IVL devices. In January, it agreed to acquire Neovasc and its Reducer system for treating refractory angina. Each year, an estimated 800,000 patients in the U.S. and EU complain of chest pain caused by reduced blood flow to the heart. The Reducer is already approved for marketing throughout the EU, and a pivotal study to satisfy U.S. regulators is currently enrolling patients.
Shockwave shares have been trading at 33.1 times trailing-12-month earnings. This multiple implies significant growth in the years ahead but not nearly as much as the company’s capable of. There’s a good chance that buying the stock now and holding on over the long run will lead to market-beating gains.