Since its IPO in March, Shockwave Medical [NASDAQ: SWAV] stock has seen its prices soar by over 200% in just a matter of months.
What’s the story behind Shockwave Medical’s stock incredible growth, and is it likely to continue in the future? We pull out the financial stethoscope and find out.
What is Shockwave Medical?
Shockwave Medical [NASDAQ: SWAV] is a medical device company that has developed a new treatment method for reducing the plaque on arteries that is a major cause of cardiovascular disease.
When arterial plaque becomes hardened and calcified, standard methods of angioplasty (widening arteries) may be ineffective. Other approaches such as rotational atherectomy only address surface calcium buildup, not the deeper instances, and they can be difficult and risky even when effective.
Shockwave aims to break up calcified arterial plaque through a process called lithotripsy. Using the same technology used to treat kidney stones, ultrasonic “shock waves” (hence the company’s name) can disintegrate the calcium.
The ultrasonic blast is delivered via a small device inserted in the artery via balloon angioplasty, with less risk than other procedures.
The company was founded in 2009 and is headquartered in Santa Clara, California, . Doug Godshall currently serves as Shockwave Medical’s president and CEO. Some of its main competitors are Intact Vascular, EndoSpan, Boston Scientific, Mercator MedSystems, and Vesper Medical.
Investing in Medical Device Companies: Yay or Nay?
Some of the advantages of investing in medical device companies are:
Consistent Performance: Like the healthcare sector as a whole, medical device company stocks have a fairly consistent, predictable performance.
Stable Demand: Even in the event of an economic downturn, people need medical devices and other healthcare products. This makes them more recession-proof than the average company.
But there are some drawbacks of buying into medical device companies, including:
Stiff Competition: They are highly dependent on developing innovative technologies that can outperform those of their business rivals. The fate of a single company may quickly rise or fall over time.
Requires Scientific Knowledge: In many cases, it’s necessary to be familiar with the science and engineering behind a particular device, so that you can separate the pioneers from the snake oil salesmen.
Dependent on External circumstances: Events like FDA approvals, which can be difficult to predict, often dictate the fate of an individual stock to a large degree.
Is Shockwave Medical Stock A Buy?
Even if you knew nothing else about the company, the stunning growth of Shockwave Medical shares since March should be enough to make you take notice. SWAV stock rose by 30% in April, during a month when the S&P 500 index returned 4.8%.
SWAV shares jumped by an additional 15% on May 9, when the company announced its Q1 2019 earnings. Year-over-year revenue was up by an incredible 450%, reaching $7.3 million.
This outperformed investors’ revenue expectations of $5.7 million. Although Shockwave lost $12.8 million in the first quarter due to launching its new lithotripsy devices, it still has $138 million in the bank after its March IPO.
Even better news is that Shockwave has strong potential for growth. The company is looking to treat two kinds of atherosclerosis: peripheral artery disease (PAD) in the legs, stomach, arms, and head, as well as coronary artery disease (CAD) in the heart.
The Shockwave M5 device has already been approved by the U.S. FDA in July 2018 for cases of PAD above the knee. In addition, Shockwave is waiting on approval for the Shockwave C2 for treating CAD, as well as the Shockwave S4 for PAD below the knee.
If these two products are also approved by the FDA–and it’s likely they will, given that they already have been in the European Union – the company’s future will look even brighter.
The Risks of Buying Shockwave Medical Stock
However, the outlook is not all rosy for SWAV shares. The company is up against fierce competition from larger, more established players in the atherosclerosis market.
Some of these rivals include Boston Scientific [NYSE: BSX], which has developed a drug-eluting stent system, and Medtronic PLC [NYSE: MDT], which launched a drug-coated balloon product for angioplasty in August 2018.
It’s very possible that twists and turns in the available technology for atherosclerosis will quickly send Shockwave Medical stock plunging.
Another risk for the company is if the FDA fails to approve one or both of its Shockwave devices. Such an action would send it straight back to the drawing board and force it to spend more money on research and development.
Shockwave Medical Stock Forecast: Buy or Sell?
There are a lot of things to like about Shockwave Medical stock, particularly shares’ outrageously strong performance since the IPO in March. The company appears to have strong potential for both revenue growth and market disruption that it would be able to capitalize on.
When looking at the stock price, however, Stockwave Medical shares may be frothy and overvalued. For patient investors, it may be worth sitting on the sidelines for this moonrocket to come back down to earth in order to find a better value to price ratio.