Does TransMedics Stock Still Have Upside After FDA Approval Spurs Recent Rally?

If you have been tracking TransMedics Group, you know this stock has a way of keeping investors on their toes. Just in the past week, it’s notched a 2.7% gain, and if you were looking at it a month ago, you would have seen a 10.7% climb. Year-to-date? An eye-catching 73.2% rally. However, zooming out, the picture’s a bit mixed. Despite an impressive 174.6% jump in the last three years and a massive 785.3% run over five years, the stock actually dipped 16.6% over the past year. That kind of volatility makes sense when you look at the broader landscape. Increased demand for organ transplantation technology has helped fuel speculative interest, but with innovation comes changing perceptions of risk.

It’s not just the headlines and price action that matter to smart investors though. The real question is whether TransMedics Group is worth its current price. Using traditional valuation yardsticks, the company gets a value score of 3 out of 6, meaning it passes half of the typical undervaluation checks. That’s neither screamingly cheap nor obviously overvalued, prompting a closer look.

Let’s break down how analysts typically size up stocks like TransMedics. We’ll explore the primary valuation approaches, and stick around, because there’s an even more insightful way to look at valuation that we’ll share by the end of this article.

Why TransMedics Group is lagging behind its peers

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

The Discounted Cash Flow (DCF) model is a common method for estimating a company's value by projecting its future cash flows and then discounting those amounts back to today’s value. This gives investors a sense of what the business is truly worth based on its ability to generate cash over time, rather than just its recent profits or losses.

For TransMedics Group, analysts start with the company’s latest twelve months of free cash flow, which stands at negative $49.8 million. Projections show steady growth ahead, with expected annual free cash flow climbing to $233.6 million by 2028. Looking further out and extrapolating beyond analyst estimates, cash flows may reach $569.3 million a decade from now. These figures are all presented in US dollars.

Based on these projections and the DCF methodology, the estimated intrinsic value of TransMedics Group’s shares comes to $244.92. Compared to where the shares are currently trading, this implies the stock is 53.0% undervalued.

If the growth outlook is accurate, the current price could offer a significant discount to fair value.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests TransMedics Group is undervalued by 53.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: TransMedics Group Price vs Earnings

The Price-to-Earnings (PE) ratio is a preferred valuation tool when analyzing profitable companies because it reflects what investors are willing to pay today for each dollar of the company’s earnings. It’s especially useful for assessing companies like TransMedics Group, which now reports positive earnings, making it possible to compare with industry and market standards.

Generally, a higher PE ratio suggests greater growth expectations or a perception of lower risk, while a lower PE ratio may signal slower anticipated growth or higher risk. Determining what counts as a fair or “normal” PE depends largely on these factors. Companies with faster growth or more stable business models usually command a premium multiple.

Right now, TransMedics Group trades at a PE of 54.8x. For context, the broader Medical Equipment industry averages 30.6x, and its peer group sits near 42.9x. By comparison, Simply Wall St’s proprietary “Fair Ratio” for TransMedics Group is 36.9x, which represents the PE that best fits the company’s growth profile, profit margins, business risks, market cap, and the broader industry environment. The Fair Ratio offers a sharper perspective by factoring in each individual company’s unique dynamics instead of relying solely on blunt averages that can ignore crucial differences.

Since TransMedics Group’s actual PE is noticeably above its fair value PE, this points to the stock being somewhat overvalued on an earnings basis right now.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 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 an easy-to-use tool that helps investors connect the story they believe about a company, such as future opportunities, risks, and market context, with the numbers behind it, like revenue forecasts, profit margins, and ultimately, fair value.

Instead of just relying on traditional ratios or consensus targets, Narratives let you define your own view of TransMedics Group. You can link your perspective on industry trends, innovation, and strategic moves to the company’s future financials. Narratives bring this story to life within the Simply Wall St Community page, where millions of investors globally share and update their perspectives in real time.

This approach empowers you to track how your beliefs compare to current prices. If your fair value is well above today’s market price, it could be a buy signal. If not, it might be time for caution. In addition, because Narratives update dynamically when news breaks or earnings change, you stay on top of the latest developments with ease.

For example, some TransMedics Group bulls see surging global transplant demand and new product launches justifying a fair value as high as $170, while the most cautious investors highlight rising competition and operational challenges, supporting a lower target near $114.

Do you think there's more to the story for TransMedics Group? Create your own Narrative to let the Community know!

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.

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