Why TransMedics Stock Plunged in October

Shares of TransMedics (NASDAQ: TMDX), a biotech company that specializes in organ transportation, were tumbling last month after it issued disappointing results in its third-quarter update.

TransMedics shares had been soaring prior to the report as investors saw it as a disruptor in the industry, and it has put up impressive top-line growth.

The third-quarter results called the valuation into question as the company's growth slowed faster than expected. According to data from S&P Global Market Intelligence, the stock finished the month down 48%. As you can see from the chart below, the stock declined through the first few weeks of the month and then plunged on the earnings report at the end of October.

TMDX data by YCharts

TransMedics takes a dive

There wasn't any clear reason for TransMedics' pullback over the first few weeks of October as the broad market was mostly flat. Interest rates rose over the course of the month, which can put pressure on high-growth, low-profit stocks like TransMedics. However, the main news on the stock came in its third-quarter earnings report at the end of the month.

Revenue in the quarter jumped 64% to $108.8 million, which was short of the analyst consensus of $115 million. Management said the jump in revenue was driven by an increase in the utilization of its Organ Care System (OCS), and helped by additional revenue from its logistics services.

Gross margin slipped from 61% to 56% as more of the company's revenue continues to shift from product to services. Services revenue jumped 130% in the quarter to $42.9 million. On the bottom line, adjusted earnings per share came in at $0.12, significantly worse than the consensus at $0.29.

CEO Waleed Hassanein said, "We continued to make meaningful progress across each of our growth initiatives through the third quarter and maintain our conviction in our growth runway for 2025 and beyond." The company stood by its target of achieving 10,000 OCS transplant cases annually in the U.S. by 2028.

Image source: Getty Images.

What's next for TransMedics

TransMedics' guidance calls for a solid finish to the year. It sees full-year revenue of $425 million-$445 million, which represents 76%-84% growth. At the midpoint, that was weaker than the consensus at $444.4 million, but it may reflect the underwhelming third-quarter results.

Overall, the results were disappointing, and the sell-off is understandable. But the quarter shouldn't affect the long-term performance of the business. In fact, the price cut looks like a buying opportunity if the biotech company continues to disrupt the organ transplant market.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends TransMedics Group. The Motley Fool has a disclosure policy.