GenMark Diagnostics, Inc Up 258% This Year, Ideal Conditions for More

GenMark Diagnostics, Inc Up 258% This Year, Conditions Ideal for MoreGenMark Diagnostics, Inc Has Bright Future as Medical Testing Costs Fall

A key player in the molecular diagnostic solutions space is GenMark Diagnostics, Inc (NASDAQ:GNMK).

Here we are, about six months living with the COVID-19 pandemic, and the rush to find a vaccine is relentless. While this virus will eventually be resolved, we have been seeing demand rise for the screening of certain infectious diseases and genetic conditions.

My bull thesis for GenMark Diagnostics stock will be driven by the steady decline in the cost of the screening tests, as well as people’s desire for more in-depth medical testing.

The stock market has clearly been taking note, with GNMK stock well up from its March low of $3.36, up a sizzling 258% this year (at the time of this writing).

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The below chart shows the GenMark Diagnostics stock rally from its March lows.

GNMK stock showed a bullish golden cross pattern in late April. A plus is that the stock held its 50-day moving average in June, which was followed by a strong rally and upside trade gap in early July.

Chart courtesy of StockCharts.com

While the easy money may be in the past, I like the longer-term prospects for GenMark Diagnostics stock to move higher as the company ramps up revenues and moves toward profitability.

Strong Revenue Growth Supports Bull Story for GNMK Stock

GenMark Diagnostics, Inc increased its revenues in five consecutive years to a record high in 2019. The compound annual growth rate (CAGR) during this time frame was almost 22.3%.

Fiscal Year Revenues (Millions) Growth
2015 $39.4
2016 $49.3 25.0%
2017 $52.5 6.6%
2018 $70.8 34.7%
2019 $88.0 24.4%

(Source: “GenMark Diagnostics Inc.MarketWatch, last accessed July 31, 2020.)

The positive revenue trend is expected to continue. GenMark Diagnostics is estimated to grow its revenues 45.3% to $127.9 million this year, prior to the growth moderating to 5.8% to $135.3 million in 2021. (Source: “GenMark Diagnostics, Inc. (GNMK),” Yahoo! Finance, last accessed July 31, 2020.)

Given the pandemic and declining test cost, I would not be surprised to see stronger revenue growth in 2021.

What GenMark Diagnostics needs to deliver is positive earnings before interest, taxes, depreciation, and amortization (EBITDA) and profits.

A positive is that the company improved its EBITDA in 2018 and recorded a five-year best in 2019. With revenues rising, I expect the EBITDA to move toward positive.

Fiscal Year EBITDA (Millions) Growth
2015 -$38.1
2016 -$45.1 -18.2%
2017 -$54.2 -20.3%
2018 -$40.7 24.9%
2019 -$34.6 15.1%

(Source: MarketWatch, op. cit.)

As far as profitability goes, GenMark Diagnostics, Inc is losing money based on generally accepted accounting principles (GAAP), but the losses are expected to narrow as revenues go higher.

Fiscal Year GAAP Diluted Earnings Per Share Growth
2015 -$1.00
2016 -$1.15 -15.0%
2017 -$1.21 -5.1%
2018 -$0.91 24.9%
2019 -$0.82 9.4%

(Source: MarketWatch, op. cit.)

GenMark Diagnostics is estimated to significantly narrow its loss to $0.42 per diluted share this year, followed by $0.26 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

The company’s free cash flow (FCF) is negative, but it has shown some signs of improving. The higher revenues and narrower losses will help GenMark Diagnostics move toward positive FCF.

Fiscal Year Free Cash Flow (Millions) Growth
2015 -$35.7
2016 -$42.6 -19.5%
2017 -$58.2 -36.6%
2018 -$35.1 39.8%
2019 -$37.0 -5.5%

(Source: MarketWatch, op. cit.)

Analyst Take

GenMark Diagnostics, Inc has clearly been helped by the pandemic, despite the fact that the company is not a play on COVID-19. The potential in GenMark Diagnostics stock is the rising demand for diagnostic testing as costs decline.

GNMK stock has strong institutional ownership, with 165 institutions owning 91.8% of the common shares. That should give investors some confidence in the prospects for this stock. (Source: Yahoo! Finance, op. cit.)