GeneDx Holdings Corp. (WGS) has been demonstrating impressive relative strength, one of only a few stocks adhering to its 150-day SMA, while also never even testing its 200-day SMA. This is the type of relative strength seen in names that will lead in a new up-leg:
Looking ahead, I still see impressive long-term upside for GeneDx, as in $200-$300 over the next 2-3 years. Here are the reasons why I like WGS into the Q1 print and why I see strong long-term upside still:
New indications are about to move the needle in the 2nd half of this year.
The move into Newborn Intensive Care Unit (NICU) is one such new indication. We think the focus on this nascent vertical will catalyze enhanced revenue growth late this year and next.
Profitability is going to inflect well above consensus. Gross margins should trend to the mid-70s this year, which is almost 900 bps above consensus. Longer term, a move to 80%+ gross margins is on the table, which is one key lever for forward bottom-line consensus being woefully too low.
Cerebral Palsy is another new indication that will spur continuous strong top line growth later this year.
Looking further out, GeneDx's genome sequencing data becomes smarter with every genetic test performed. As GeneDX moves into new verticals, its efficiencies and the intelligence of its platform will increase, thereby expanding its moat vs competitors.
As WGS penetrates these new verticals, the leverage to the bottom line will be significant.
We are going to stick our necks out here - we ascribe 60% odds GeneDx can approach a $1B in sales run-rate by the end of 2028. They could do $12+ in EPS by then. Give it a 25x multiple and you get to $300.
Net net, if there is one stock we want to be long into the print for this earnings season, it is WGS.
In an economy veering toward, if not already in, a recession, WGS's dynamic organic growth of a 40% CAGR for the next two years on the top line, along with 100% EPS growth over the same two years, will expand its multiple on the other side of this market mess. WGS will be a top pick for growth investors.
Final points: Because there is a limited float here of 28.1M shares, it will not take much incremental buying to get WGS to new highs.
The biggest risk to this trade is that the window can quickly close as this is still a bear market that will likely need a re-test. If we do go into recession, odds favoring another big downleg.
Therefore, we are mitigating our risk by keeping our allocation here VERY SMALL.
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Disclosure: We are long WGS stock and calls. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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