Is This Under-the-Radar Growth Stock a Buy?
The healthcare sector spans a number of intriguing areas for investors. These include pharmaceuticals, health insurance, and medical devices. Within that last group sits AngioDynamics (ANGO -0.26%), a little-known company that makes devices for treating peripheral vascular disease.
No doubt, that is an important specialty. But is the small-cap stock a buy for growth investors today? Let’s dig into AngioDynamics’ fundamentals and valuation to address this question.
Top-line growth is rebounding
With a market capitalization of just $539 million, AngioDynamics is a medtech business that flies under the radar of most retail investors. Don’t let that fool you, though.
The company’s portfolio consists of several products that are used by doctors on a daily basis. These include a peripheral artery disease remedy named Auryon. It also has a minimally invasive therapy used in cases of late-stage and inoperable cancers called NanoKnife. Plus, it has a blood clot treatment dubbed the AlphaVac System.
AngioDynamics posted $85.4 million in net sales in the second quarter of its fiscal 2023, ended Nov. 30, 2022. This was up 9.1% over the year-ago period. The company’s medical device segment put up $60.9 million in net sales during the quarter, which was 2.6% higher year over year. This is within the 1% to 3% long-term growth rate that CFO Steve Trowbridge expects for the segment.
Revenue for its medical device segment is especially dependent on a steady flow of medical procedures and a smooth supply chain to meet that demand. As time has passed, hospitals have been able to perform the elective procedures that were originally delayed because of the COVID-19 pandemic. Along with an improvement in AngioDynamics’ operating capacity and adjustments in its supply chain strategies, the company reduced its backlog from $7.1 million to $5 million for the quarter.
The medical device maker’s medtech segment notched net sales of $24.5 million in the second quarter, which was 29.7% higher over the year-ago period. This is basically within the 30% to 35% annualized growth rate that Trowbridge anticipates the segment will deliver over the long haul. This strong top-line growth was once again led by Auryon, NanoKnife, and AlphaVac.
Modest growth in AngioDynamics’ medical device segment and outsize growth in the medtech segment are expected to result in total annual net sales growth around 8% over the next couple of fiscal years.
The means to fund product launches
AngioDynamics plans on launching new indications for its NanoKnife and AlphaVac System franchises in the near future. This is why the company forecasts that its total addressable market will increase from $6 billion in fiscal 2023 (its current fiscal year) to $8 billion by fiscal 2025.
These growth ambitions can’t be achieved out of thin air, however. Thankfully, AngioDynamics has the capital to make these product launches happen. The company’s net long-term debt balance was $19.9 million as of Nov. 30. But AngioDynamics can draw up to $75 million from a credit facility that won’t expire until 2027.
The stock is a solid value
After plunging 50% in 2022, shares of AngioDynamics appear to be a decent value for growth investors. Since the company isn’t expected to turn a profit until next fiscal year, the most appropriate valuation metric to use in my opinion is the trailing-12-month price-to-sales (P/S) ratio. AngioDynamics’ P/S ratio of 1.6 is just below its 10-year median of 1.7.
Given that the company’s fundamentals appear as robust as they have been at any point in the last 10 years, the current $14 share price is arguably a discounted valuation for growth investors. That explains why analysts have issued an average 12-month price target of $26 for the stock, which makes it a great buy for 2023 and beyond.
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