TransMedics just put the firm under the microscope for investors

• TransMedics held its first investor day earlier this month to explain its growth strategy, and how its new OCS platforms for lung and heart will drive growth in 2025.

• The firm forecasts revenue growth between 20% and 25% in 2025, but didn’t offer up any specific margin forecasts.

• TransMedics’s stock has fallen about 65% from its August high and is now trading below a 4x price-to-sales ratio based on 2025 revenues. That’s below the average multiple for a medtech company.

Investor days are a big deal for companies: it’s their chance to present the financial and strategic plans. That’s what TransMedics did at its first-ever investor day event earlier this month. The medical startup explained how it hopes to transform the standard of care for organ transplants in the US and around the world – and why it's confident about achieving its next wave of growth. I researched the firm recently and wrote about its ground-shattering Organ Care System (OCS) technology, its recent investment in its factory capabilities, and how its logistics model is helping accelerate growth.Here’s what I learned at on its event day.

What were the highlights?To recap my Research piece, the company’s mission is to grow transplant volumes (and, thereby, sales). Its main drivers of revenue are the OCS for liver, heart, and lung transplants and the scale and efficiencies of its National OCS Program (NOP) – an expansive logistics operation with 17 strategic US hubs and a team that includes medical specialists, pilots, and planes, and ground transport.

TransMedics’s first investor day coincided with a bit of an ebb for the company: its share price had fallen to $68 from $175 four months earlier. The firm’s quarterly growth had slowed sharply, and it had just announced the departure and replacement of its CFO (which seemed like a potential red flag), and a small cut to its 2024 revenue guidance (to $430 million, a shade below the $432 million consensus).

Needless to say, investors were eager to hear what the executives had to say about the year ahead.And on that front, the news wasn’t too bad: the company forecasted sales growth between 20% and 25% in 2025, just below the 26% consensus estimates.

Looking further down the road, the company stuck with its target of performing 10,000 transplants in 2028, equivalent to a compound annual growth rate (CAGR) of approximately 29%. It also provided revenue guidance of $1.2 billion for 2028, which equates to an average of $120,000 ($1.2 billion divided by 10,000) in revenue per transplant, slightly higher than expected.

Liver transplants have been its biggest growth driver so far, but it's the new OCS for heart and lung that are expected to become game-changers for the company and the industry in the latter part of 2025.On the lung side of things, the company announced two encouraging developments. First, its new OCS solution with 24 hours of perfusion (i.e. being supplied with warm, oxygenated, and nutrient-enriched blood) showed zero edema – meaning, there was no liquid build-up, which is a key risk in transplanting lungs. And second, lungs under 24-hour perfusion showed less ischemic fatal damage than a lung simply procured using cold flush and sent to a pathologist for testing.

What’s more, technological innovations have made the OCS lung device more like a replica of the human body and that’s helped improve outcome for patients. And new data highlighted that the OCS heart device will allow for 24-hour perfusion with lower edema formation.The plan now is to present the data at the International Society for Heart and Lung Transplantation conference in Boston in April. The initial phase is expected to show a slow adoption curve followed by momentum build-up as acceptance of the new OCS gathers pace, and that’s why faster revenue growth is expected in the second half of 2025.

The company also highlighted its much-improved manufacturing facility. The firm tripled the size of its clean room and streamlined its production layouts by assigning dedicated lines to each organ's OCS. The idea is to enable mass production with hefty investments in robotic automation and digital record-keeping.

But the news wasn’t all glowing: the firm that that although it has 19 planes in its fleet, it still needs to purchase two or three more to keep things running smoothly. That won’t be cheap – and although the firm’s management insists that investors will eventually reap high returns when volumes pick up, that big-ticket expense will hurt margins in the near term.So that’s the liver, heart, and lung. But the firm has also identified growth opportunities in OCS kidneys, and in overseas markets, and it’s investing in next-generation OCS technology to keep it ahead of its rivals. During investor day, the management discussed various competitive threats and technologies, but said the OCS and NOP were more cost-effective for higher-volume transplant centers.

What do we know about TransMedics’ valuation?High-growth stocks that trade at rich valuations have little room for errors in executing their strategy, so this was TransMedics’ opportunity to alleviate concerns.The midpoint of the company’s 2025 forecast would put revenue at $522 million. And using a price-to-sales ratio of 6x – which is at the low end for medtech firms – the market cap would be approximately $3 billion, versus today’s $2.2 billion. If the firm achieved a 16% net profit margin in 2028, based on the $1.2 billion in revenues, it would be trading at price-to-earnings ratio of 11.5x. And that’s far lower than the average for the S&P 500. You can find TransMedics’s price-to-earnings (P/E) and price-to-earnings-to-growth (PEG) ratios, and assumptions here.

The bears (and there are many) say the 10,000 transplant target will be hard to achieve with the current high pricing – and they warn that margins may remain under pressure because of the ongoing need for big expenses, such as aircraft. That’s likely why a chunky 26% of the company’s free shares are being shorted by hedge funds, according to Koyfin.

According to TransMedics executives, the only way to regain shareholder confidence is by executing the firm’s growth plan. But, since the company has refrained from providing specific profit margin guidance for 2025 and since the previous CFO has left, those margins could remain an issue in the short term.

And that means the share price could continue to struggle: it has already fallen 18% this year. And sure, investors could continue to sell these shares as they adjust their portfolios for the year’s end, but the company does have some exciting potential and looks like an interesting growth opportunity for 2025. One good quarter with better-than-expected transplant volumes, market share gains or an earnings beat, and investor sentiment will likely quickly pivot toward the positive.

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