ShockWave Stuns With 40% Post-Earnings Price Move: Is It A Buy?

While larger medical device makers such as Medtronic NYSE: MDT and Intuitive Surgical NASDAQ: ISRG are struggling to gain traction, mid-cap Shockwave Medical NASDAQ: SWAV has bolted 40% higher since its second-quarter earnings report on August 8. 

The company specializes in products to treat calcified cardiovascular disease. Its intravascular lithotripsy technology has shown to have fewer risks to patients when compared to traditional angioplasty. Angioplasty is a procedure to widen obstructed arteries. 

ShockWave’s devices use sound waves to break up areas of calcium deposits. ShockWave’s customers are interventional cardiologists, vascular surgeons, and interventional radiologists.

So what happened in the earnings report that prompted investors to buy up shares?

The company earned $0.68 per share, trouncing expectations of $0.43 per share. Revenue came in at $120.70 million, also ahead of views, which called for sales of $107.51 million, as you can see by checking MarketBeat earnings data. 

In addition, those were significant improvements over the year-ago quarter, when the company reported a loss of a penny per share on revenue of $55.9 million.

Raising Previous Guidance

And there was more good news: The company boosted its revenue guidance for the full year. It now expects revenue between $465 million and $475 million, up from previous guidance of a range between $435 million and $455 million. 

In the company’s earnings conference call, CEO Doug Godshall noted the potential in Asian markets. To date, most of the international revenue has come from Europe. 

He cited approval of ShockWave’s Intravascular Lithotripsy in Japan in March, as well as the company’s Chinese jont venture, which was approved for both peripheral and coronary products in May. 

“Despite the significant prevalence of calcium, the utilization rate of existing calcium modification devices is extremely low in China, under 1% for both coronary and peripheral procedures,” Godshall said. “Literally, this represents a great opportunity for Shockwave and for our physician partners in China to improve outcomes for their patients. They have already been multiple events promoting IVL including an initial virtual launch event that had an audience of 1,500 physicians.”

Also in the call, company president Isaac Zacharias noted that delays in hospital procedures due to Covid seem to be a thing of the past, but staffing shortages have delayed some procedures more recently. 

“We do not see it impacting total procedures, more of a shift of a few weeks versus losing cases,” he said. 

Investors also cheered the company’s improved margins. 

Gross margin for the second quarter of 2022 was 86%, compared to 82% in the second quarter of 2021.

“Improvement in gross margin was primarily driven by product mix as well as continued improvements in productivity and process efficiencies,” said chief financial officer Dan Puckett. 

ShockWave is definitely in the sweet spot for companies poised to notch big price gains. It went public in March 2019. Because stocks often show major price moves in their first 15 years after going public, this company appears well positioned for a great deal of growth, particularly as it expands its international sales team. 

Revenue grew consistently over the past three years, with total revenue as follows:

• 2019: $42.93 million
• 2020: $67.79 million
• 2021: $237.15 million

Shocking P/E Ratio?

Of course, with the recent huge uptrend, the stock’s price-to-earnings ratio has rocketed to 207. Just to refresh memories, the P/E ratio measures a stock’s current share price relative to its earnings per share. 

ShockWave’s P/E may be a shock to the system for investors accustomed to seeking out value stocks. However, it’s not uncommon for growth stocks to sport sky-high P/E ratios, even as they continue to rally higher. 

Having said that, the stock is likely to pull back at some point soon, since there’s ample opportunity for some investors to take some money off the table. 

ShockWave closed Thursday at $310.53, a new high. With shares trading well above all key moving averages, including the 10-day, it’s probably too risky to jump in. Investors and traders might consider waiting for a pullback to that line before scooping up some shares.