JIt’s a big market for stock pickers. Multiples have been halved for a large number of small caps as the stock market currently has no appetite for risk. Nonetheless, if you dig deep enough, you can find stocks with remarkable upside potential.
Here’s why our roundtable loves asserted (NASDAQ: AFMD), Medical start (NASDAQ:OM)and InMode (NASDAQ: INMD).
A terribly underestimated stock of cancers
George Budwell (Affirmed): If you’re looking for a little-known biotech stock with huge upside potential, German immunotherapy company Affimed should definitely be on your radar. The main reason is that shares of Affimed appear to be incredibly undervalued at current levels.
What is the backstory? Affimed is developing an anti-cancer technology known as Innate Cellular Engages. These molecules bind natural killer cells/macrophages to tumor cells to accelerate tumor cell destruction. Although the basic idea behind this technology is relatively simple compared to more complex antibody approaches, the results speak for themselves. At this point, Affimed’s preliminary trial for its lead product candidate, AFM13, has shown exceptional results in a population of heavily pretreated patients with relapsed or refractory CD30-positive lymphomas late last year.
What’s coming? Affimed is expected to release the second batch of results from this earlier trial on April 10, 2022 at an upcoming scientific meeting. Perhaps more importantly, however, the biotech is also on track to unveil highly anticipated study results for its trial enabling the recording of AFM13 in patients with peripheral T-cell lymphoma during the course of the second half of 2022. Taken together, these two early indications for AFM13 could generate over $1 billion in sales as early as 2025.
In addition to these near-term catalysts, Affimed is expected to roll out several additional clinical updates for its other pipeline candidates over the next 12-24 months. Aggressive investors may therefore want to familiarize themselves with this small-cap biotech soon.
The beginnings of a multi-billion dollar disruption
Patrick Bafuma (Onset Medical): Medical device maker Outset Medical is making life easier for patients with chronic kidney disease. Its Tablo System is a home hemodialysis machine that reduces the complexity of home dialysis. And the Centers for Medicare & Medicaid Services agrees, having deemed Tablo a substantial clinical improvement over current home hemodialysis. This could be a major tailwind for the company to disrupt the $8.9 billion US home dialysis market.
Following positive feedback from Uncle Sam, Outset presented positive data at the National Kidney Foundation’s Spring Clinical Meeting earlier this month. A survey of dialysis patients found that 72% viewed Tablo as a significant improvement over current home treatments, and 77% of patients believed the company’s disruptive technology would make them more likely to try hemodialysis at home. residence. Just over three-quarters of nephrologists thought Tablo was a significant improvement over current devices, and 98% said its features would make them more likely to recommend home hemodialysis. Considering that nephrology membership is critical to the success of device manufacturers, investors have reason to be excited about Outset’s future.
The company is also growing, with sales of $102.6 million in fiscal 2021, an increase of 105.5% over the previous year. It has signed agreements with 7 of the 8 largest health systems and a third of the 100 largest regional health systems. And with nephrologists, patients and Uncle Sam all keen on Tablo, as well as a stronger foothold in healthcare systems, it’s becoming clear that Outset is a growing force in the industry. While by no means cheap with a current price to sales ratio of around 21, the company is rapidly gaining traction in a multi-billion dollar addressable market. Because of that, I think Outset Medical has plenty of trail to keep investors smiling for years to come.
A fast-growing biotech platform with recurring revenues
Taylor Carmichael (InMode): I don’t own any stocks of InMode yet, but it’s one of the health stocks at the top of my watch list. It is an extremely profitable small cap stock, with profit margins of 46%. And it’s also growing rapidly, with revenue growing 47% in its latest quarter. The company specializes in minimally invasive devices for plastic surgery. Today, plastic surgery is a mature market – $50 billion a year and growing at 3%. InMode is therefore interesting because it succeeds in conquering market share.
Why is demand skyrocketing for InMode devices? The company’s technology is based on non-invasive radio frequency (RF) devices. So it’s a big problem. Currently, 2.5 million cosmetic surgeries are performed worldwide every year. Plastic surgery is expensive and carries all the risks of surgery: it requires anesthesia; there may be a recovery period; and there is the likelihood of some scarring. Non-invasive surgeries are safer and cheaper.
For example, 40 million laser procedures are performed each year. These types of procedures are 16 times more common than plastic surgery. This is because lasers – like RF devices – are non-invasive. But lasers have a very limited range and are typically used for things like hair removal, pigmented lesions, vascular lesions, leg veins, and acne. InMode’s sales are increasing dramatically because its non-invasive devices can perform remodeling and reconfiguration similar to what plastic surgery can do, but without the cost or risk of invasive surgery.
Like many high-growth names, InMode has been hammered recently, and the stock has fallen from $99 per share in November to $35 per share today. But this only represents a reduction of the multiple. The price-to-earnings (P/E) ratio has been crushed from 53 times earnings to 18 times. And the stock trades at just eight times earnings, which is incredibly cheap given the growth rates.
InMode made $110 million in revenue in the fourth quarter, and 89% of its sales were devices. InMode now has 11,600 devices placed worldwide. And it is making dramatic inroads outside of the plastic surgery market. It thrives in women’s health and wellness and sells its devices to gynecologists. InMode isn’t just taking market share from surgical options; the company is also expanding its market opportunities. There are 45,000 gynecologists worldwide, nearly three times as many physicians as InMode’s home market.
What I love most about this business, however, is the recurring revenue. These numbers are increasing dramatically. InMode sold 132,000 disposable items in the fourth quarter, compared to 94,000 in the third quarter. That reminds me Intuitive surgery (NASDAQ: ISRG). Once doctors lock onto a platform, investors can expect recurring revenue to flow from using the device. With InMode, you’re not just buying a growing medical device company. You buy shares of a platform technology, with each device generating more revenue in the future. The advantage is important here, in my opinion.
10 stocks we prefer to Affimed Therapeutics
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George Budwell has no position in the stocks mentioned. Patrick Bafuma has no position in the stocks mentioned. Taylor Carmichael owns Intuitive Surgical. The Motley Fool owns and endorses InMode Ltd., Intuitive Surgical and Outset Medical, Inc. The Motley Fool has a Disclosure Policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.