Assessing TransMedics Group After 104% Rally and Regulatory Approval News

• Thinking about whether TransMedics Group is a hidden gem or an overpriced story stock? You are not alone. In this article, we will dig into what the numbers tell us about its value.
• The last year has seen a sharp 65.7% gain, with a massive 104.2% return so far this year and a fresh 5.3% boost in the past week, turning plenty of heads toward this healthcare innovator.
• Much of this momentum traces back to the company's expansion announcements and updated regulatory approvals, which have helped spark fresh investor confidence. Several high-profile partnerships have also made headlines, fueling speculation that TransMedics could be entering a new phase of growth.
• All that buzz is interesting on its own, but what really matters is valuation. Right now, TransMedics gets a 3 out of 6 on our value score. We'll dig into traditional valuation frameworks next, but keep an eye out for what we think might be an even smarter way to judge value at the end of the article.

TransMedics Group delivered 65.7% returns over the last year. See how this stacks up to the rest of the Medical Equipment industry.

Approach 1: TransMedics Group Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is designed to estimate a company’s intrinsic value by projecting its future cash flows and discounting them back to today’s dollars. This approach helps investors determine what a company is truly worth based on its future earning power, rather than just market sentiment.

For TransMedics Group, the latest reported Free Cash Flow (FCF) stands at $17.7 Million. Analysts provide cash flow growth estimates for the next several years, showing a rapid acceleration in FCF. By 2028, projections point to Free Cash Flow rising to $233.6 Million. From there, future values are extrapolated using conservative growth rates, with the ten-year forecast reaching $569.3 Million by 2035. All projections are provided in US dollars.

Relying on the two-stage DCF calculation, the model arrives at an estimated intrinsic value of $243.50 per share. This figure suggests TransMedics Group is currently trading at a 44.2% discount to its intrinsic value, based solely on future cash flows. In other words, the stock appears significantly undervalued according to this trusted valuation approach.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests TransMedics Group is undervalued by 44.2%. Track this in your watchlist or portfolio, or discover 848 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for TransMedics Group.

Approach 2: TransMedics Group Price vs Earnings

The Price-to-Earnings (PE) ratio is a commonly used valuation metric that works best for profitable companies like TransMedics Group. The PE ratio tells us how much investors are willing to pay today for each dollar of current earnings. This makes it a useful indicator for comparing across similar businesses and industries.

Growth expectations and perceived risks play a big role in determining what a “normal” or “fair” PE should be. Companies with faster expected earnings growth or lower risk profiles can often justify higher PE ratios. Those facing more risk, slower growth, or weaker profitability typically trade on lower PE multiples.

TransMedics Group currently trades at a PE ratio of approximately 50.4x. This is notably higher than the Medical Equipment industry average of 28.0x and above its peer group average of 38.4x. On the surface, this suggests the stock might be priced expensively compared to its peers.

However, rather than relying only on these benchmark comparisons, Simply Wall St’s “Fair Ratio” evaluates additional factors. The Fair Ratio is a proprietary measure that adjusts for elements like the company’s specific earnings growth, profit margins, risk profile, industry, and market cap. By accounting for these elements, it provides a more nuanced gauge of what would be a reasonable PE for TransMedics Group specifically.

Simply Wall St assigns TransMedics Group a Fair PE Ratio of 32.3x. Since the actual PE (50.4x) is significantly higher than the Fair Ratio, this suggests the stock is overvalued on this metric, even after accounting for its growth and profitability.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1405 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your TransMedics Group Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal investment story for a company. It captures your perspective on where the business is headed and turns it into a concrete set of numbers, like forecasts for future revenue, earnings, and profit margins.

Narratives help you connect the story of TransMedics Group to your own financial forecast, calculating a Fair Value based on your assumptions, not just the current market hype. This tool is easy to use and available on Simply Wall St’s Community page, where millions of investors build and share their own Narratives.

By comparing your Narrative’s Fair Value to the current share price, you have a clear, personalized way to decide if it might be time to buy or sell. Narratives also stay up to date automatically when new news or earnings are released, so your investment view can keep pace with reality.

For example, with TransMedics Group, one investor’s Narrative may assume faster adoption of new organ transplant technology and see a fair value as high as $170.00. Another, more cautious view may focus on regulatory risks and forecast just $114.00, putting a clear range on what the stock is worth depending on your outlook.

Do you think there's more to the story for TransMedics Group? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com