GeneDx is Monday's IBD Stock Of The Day. Shares of the DNA-reading player are eyeing multiple buy points on the way to a gain of 2,500%-plus for the year.
The Stamford, Conn.-based company was spun out of the National Institutes of Health more than two decades ago. Today, it provides genetic testing to help identify rare and ultrarare diseases. GeneDx ranks No. 37 on the IBD 50 list of elite growth stocks.
After a circuitous route to the public markets in 2021 and bottoming out below $2 a share in November 2023, GeneDx shares have skyrocketed this year amid a massive turnaround. The company achieved its first adjusted net income in the third quarter of 2024 — a year ahead of expectations — after sloughing off old businesses in 2022.
Despite the strong run-up in the stock, "we still see a lot to like in the story from here," TD Cowen analyst Dan Brennan said in a report this summer.
GeneDx's Transformation
GeneDx looks a lot different than it did in 2021 when the stock went public.
The company came about through the merger of Sema4 Holdings and GeneDx. Sema4 sold diagnostic tests for reproductive health, women's health and some cancers. Shares went public almost four years ago via a reverse merger. GeneDx was a subsidiary of Opko Health.
GeneDx later wound down its cancer, reproductive and women's health businesses, instead focusing on exome and genome sequencing to identify rare and ultrarare diseases. An exome includes all the protein-coding genes inside a person's body. The genome includes every piece of DNA.
Genetic testing isn't standard in the neonatal intensive care unit, or NICU. Nor is it a normal option from pediatricians. But for some parents it's a necessary — and often belated — step to gaining answers to a newborn's or child's symptoms.
Instead, parents and their children go through a "diagnostic odyssey," says Katherine Stueland, chief executive of GeneDx. Generally, when a child is experiencing a symptom — like seizures or missing a development milestone — he or she first sees a pediatrician. If the pediatrician is stumped, the child then goes to a specialist.
"Over the course of months and years, you're kind of moving through the health care system, usually without getting a genetic test," she told Investor's Business Daily. "And that's part of the problem we're trying to solve. It takes, on average, six to eight years to get an accurate diagnosis for a child with one of these symptoms, and with the technology we have today we can do it in days or weeks."
Earlier Diagnosis Is Better
There's widespread agreement in the medical world that patients with earlier diagnoses tend to fare better.
"Today, I would say there's an underutilization of testing and it's used late, which is expensive for the families, it's expensive for the health care systems," Stueland said. "But the heart of it is it's detrimental to the child and the disease progression that happens during that time."
GeneDx only screens for diseases where there is a therapeutic intervention. There's an intervention like diet supplements, an approved treatment or a clinical trial investigating a treatment.
The company's primary focus is on children, though GeneDx has also provided tests for adults.
Sales are booming. In the third quarter, revenue surged 52% to $76.6 million, walloping forecasts for $65 million, according to FactSet. And, promisingly, GeneDx came in with $1.2 million in adjusted net income. Analysts had projected a $6.5 million loss.
GeneDx stock gapped almost 50% higher on Oct. 29, the day the company reported its third-quarter earnings. Shares are now consolidating with a buy point at 89.11, according to IBD MarketSurge. Investors could also look for an early entry at last week's high of 81.90 or another short-term high at 84.77.
Promisingly, shares have a perfect IBD Digital Relative Strength Rating of 99. This means GeneDx stock ranks in the leading 1% of all stocks when it comes to 12-month performance.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
