Liquid Diagnostics And Expanding Lab Footprint Will Drive Strong Long Term Outcomes

Catalysts

About MDxHealth

MDxHealth provides precision diagnostic tests that guide the prostate cancer and urology patient journey from initial suspicion through treatment decisions.

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

• Integration of the ExoDx acquisition with an expanded 60 person sales force across 8 regions is expected to unlock significant cross selling between liquid and tissue tests and to accelerate revenue growth toward the higher end of management’s long term targets, supporting operating leverage.
• Rapidly growing adoption of liquid based diagnostics, evidenced by 65 percent year over year growth in liquid test volumes and the planned conversion of Select customers to ExoDx, positions MDxHealth to benefit from the broader shift toward non invasive cancer testing. This trend may drive higher total volumes and lift earnings power.
• Scaling of a three lab national footprint in California, Texas and Massachusetts with tight metric driven process management is driving sustained gross margin expansion, which may continue to improve net margins and support durable positive adjusted EBITDA.
• Increasing physician reliance on comprehensive precision urology menus, combined with MDxHealth’s broad IP and clinical data across multiple cancers, reinforces its competitive moat and may support premium pricing, stable ASPs and expanding revenue per account.
• Disciplined capital allocation, including deferring Germline to prioritize high return integration and operational efficiency, is already reflected in flat OpEx on 20 percent year to date revenue growth and may translate into improving operating margins and narrowing net losses.

Assumptions

This narrative explores a more optimistic perspective on MDxHealth compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming MDxHealth's revenue will grow by 24.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -30.5% today to 7.9% in 3 years time.
• The bullish analysts expect earnings to reach $15.6 million (and earnings per share of $0.29) by about December 2028, up from $-31.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $-9.2 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 38.1x on those 2028 earnings, up from -5.2x today. This future PE is greater than the current PE for the GB Biotechs industry at 19.0x.
• The bullish analysts expect the number of shares outstanding to grow by 1.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.4%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The ambitious integration of the ExoDx acquisition, including cross training 60 sales reps across 8 regions and consolidating three laboratories into a unified process framework, may prove more complex or time consuming than expected. This could disrupt operations, slow test adoption and limit the anticipated uplift in revenue and gross margins.
• The decision to set aside entry into the Germline market, despite previous expectations for material Germline revenue in the second half of the year, suggests dependence on a narrower test menu and a single therapeutic area. This could constrain long term growth if competitive offerings or new standards of care shift demand away from MDxHealth’s current portfolio and weigh on revenue growth.
• Management repeatedly emphasizes very conservative revenue cycle management and acknowledges visible volatility in average selling prices across the test mix. This indicates ongoing reimbursement, pricing and collections uncertainty that could pressure gross profit, net margins and ultimately earnings if payers become more restrictive over time.
• The growth strategy relies heavily on sustained high productivity from an expanded, incentive driven sales force and continued outperformance of tissue and liquid tests versus the broader market. Any slowdown in urology procedure volumes, increased competitive intensity or salesforce turnover could reduce test volumes, dampen operating leverage and slow progress toward durable positive earnings.
• MDxHealth is concentrating on a single high growth urology niche with expectations for accelerating growth from roughly 20 percent to closer to 30 percent annually. Any structural change in prostate cancer screening guidelines, reimbursement frameworks or adoption of alternative diagnostics could lower long term demand, limiting revenue scalability and preventing the company from achieving and sustaining attractive net margins and earnings growth.

Valuation

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

• The assumed bullish price target for MDxHealth is $9.0, which represents up to two standard deviations above the consensus price target of $7.04. This valuation is based on what can be assumed as the expectations of MDxHealth's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $9.0, and the most bearish reporting a price target of just $4.2.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $196.9 million, earnings will come to $15.6 million, and it would be trading on a PE ratio of 38.1x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $3.32, the analyst price target of $9.0 is 63.1% 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.