Diagnostics company Guardant Health (NASDAQ:GH) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 30.2% year on year to $201.8 million. Its GAAP loss of $0.90 per share was 12.4% below analysts’ consensus estimates.

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Company Overview

Founded in 2012, Guardant Health (NASDAQ:GH) is a precision diagnostics company that develops blood tests for detecting cancer and assessing treatment responses.

Testing & Diagnostics Services

The testing and diagnostics services industry plays a crucial role in disease detection, monitoring, and prevention, serving hospitals, clinics, and individual consumers. This sector benefits from stable demand, driven by an aging population, increased prevalence of chronic diseases, and growing awareness of preventive healthcare. Recurring revenue streams come from routine screenings, lab tests, and diagnostic imaging, with reimbursement from Medicare, Medicaid, private insurance, and out-of-pocket payments. However, the industry faces challenges such as pricing pressures, regulatory compliance, and the need for continuous investment in new testing technologies. Looking ahead, industry tailwinds include the expansion of personalized medicine, increased adoption of at-home and rapid diagnostic tests, and advancements in AI-driven diagnostics that enhance accuracy and efficiency. However, headwinds such as reimbursement uncertainties, competition from decentralized testing solutions, and regulatory scrutiny over test validity and cost-effectiveness may impact profitability. Adapting to evolving healthcare models and integrating automation will be key for sustaining growth and maintaining operational efficiency.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Guardant Health’s sales grew at an exceptional 28.1% compounded annual growth rate over the last five years. Its growth beat the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Guardant Health’s annualized revenue growth of 28.2% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

We can better understand the company’s revenue dynamics by analyzing its number of clinical tests, which reached 57,300 in the latest quarter. Over the last two years, Guardant Health’s clinical tests averaged 29.5% year-on-year growth. Because this number is in line with its revenue growth, we can see the company kept its prices fairly consistent.

This quarter, Guardant Health reported wonderful year-on-year revenue growth of 30.2%, and its $201.8 million of revenue exceeded Wall Street’s estimates by 4.8%.

Looking ahead, sell-side analysts expect revenue to grow 15.7% over the next 12 months, a deceleration versus the last two years. Still, this projection is admirable and indicates the market is forecasting success for its products and services.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Guardant Health’s high expenses have contributed to an average operating margin of negative 92% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

On the plus side, Guardant Health’s operating margin rose by 28.9 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 61.1 percentage points on a two-year basis. These data points are very encouraging and shows momentum is on its side.

In Q4, Guardant Health generated a negative 62.4% operating margin. The company's consistent lack of profits raise a flag.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Guardant Health’s earnings losses deepened over the last five years as its EPS dropped 33.8% annually. We’ll keep a close eye on the company as diminishing earnings could imply changing secular trends and preferences.

In Q4, Guardant Health reported EPS at negative $0.90, up from negative $1.58 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Guardant Health to improve its earnings losses. Analysts forecast its full-year EPS of negative $3.56 will advance to negative $3.12.

Key Takeaways from Guardant Health’s Q4 Results

We enjoyed seeing Guardant Health beat analysts’ revenue expectations this quarter. On the other hand, its EPS missed significantly and its sales volumes were in line with Wall Street’s estimates. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes.

Should you buy the stock or not? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.