Urology Diagnostics Expansion And Liquid Testing Shift Will Drive Long-Term Earnings Power

Catalysts

About MDxHealth

MDxHealth provides precision molecular diagnostics that guide urology clinicians and patients through the full prostate cancer diagnostic pathway.

What are the underlying business or industry changes driving this perspective?

• Integration of the ExoDx acquisition expands MDxHealth's urology focused menu and customer base, which is expected to accelerate test adoption, support low double digit volume growth on top of current trends, and lift the revenue run rate.
• The ongoing shift toward noninvasive and liquid based diagnostics, evidenced by 65 percent liquid test volume growth, positions the company to capture a growing share of testing protocols, supporting sustained double digit revenue growth and a higher test mix driven gross margin.
• Expansion of the direct sales force from 50 to 60 representatives across 8 regions, combined with cross selling of tissue and liquid tests into overlapping urology accounts, is intended to increase sales productivity, deepen penetration in large group practices, and improve earnings leverage on largely fixed operating expenses.
• A multi lab footprint in California, Texas, and Massachusetts, together with unified information and revenue cycle systems, is expected to drive further operational efficiency, supporting gross margins at or above the current mid 60s level and narrowing operating losses toward consistent net profitability.
• Disciplined capital allocation, evidenced by flat operating expenses on 20 percent year to date revenue growth and minimal quarterly cash burn, provides flexibility to scale the ExoDx platform and pursue new oncology indications, which is intended to enhance long term earnings power and valuation multiples.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming MDxHealth's revenue will grow by 19.0% annually over the next 3 years.
• Analysts are not forecasting that MDxHealth will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate MDxHealth's profit margin will increase from -70.4% to the average GB Biotechs industry of 33.6% in 3 years.
• If MDxHealth's profit margin were to converge on the industry average, you could expect earnings to reach $36.0 million (and earnings per share of $1.33) by about December 2028, up from $-44.8 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, up from -2.0x today. This future PE is lower than the current PE for the GB Biotechs industry at 26.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.13%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long-term shift toward liquid and noninvasive diagnostics, currently a tailwind, could intensify competition if larger, better capitalized players invest heavily in similar urology-focused test menus. This may pressure MDxHealth's pricing power and slow revenue growth over time.
• MDxHealth remains loss making at the net income level despite recent adjusted EBITDA profitability. Any slowdown in test volume growth or reimbursement collections in coming years could stall operating leverage and delay or reverse progress toward sustainable net margins and earnings.
• The multi-lab and multi-product integration of ExoDx, including sales force expansion, territory realignment and revenue cycle systems, introduces execution risk that could disrupt customer relationships and ordering patterns. This may temporarily depress revenue and compress gross margins if efficiencies do not materialize as planned.
• The decision to pause Germline market entry, despite previously expected material contributions, suggests strategic and resource constraints. If MDxHealth continues to defer participation in broader oncology testing trends, it may forgo incremental revenue streams and scale benefits that could otherwise support margins and earnings.
• Management has communicated ambitious expectations for accelerating growth to closer to 30 percent after the ExoDx acquisition, without embedding that into formal guidance. If the realized contribution falls materially short of the implied 20 million revenue uplift, the long-term growth narrative and associated improvement in operating margins and earnings could be undermined.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €7.7 for MDxHealth based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $107.3 million, earnings will come to $36.0 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of €3.02, the analyst price target of €7.7 is 60.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.