Is the U.S. economy in a recession? The answer really depends on whom you listen to.
Officially, the National Bureau of Economic Research (NBER) needs to weigh in, which it hasn’t done yet. The last time the NBER declared an official recession was in early 2020, and it didn’t last long.
There are a lot of ins and outs individual investors should understand about recessions and business cycles in general. One thing we all learn the hard way is that during recessions, stock prices tend to plummet.
With this in mind, you could be tempted to stay on the sidelines instead of putting your money to work in the stock market right now. This is a great idea if you know when the larger economy will fully tilt into recession. Since nobody has this knowledge, you’re more likely to come out ahead by purchasing stocks that you can expect to resist economic downturns.
A recession-proof growth stock for all seasons
Right now, Shockwave Medical (SWAV) looks like a terrific stock for investors worried about a recession. This company develops and markets the world’s only intravenous lithotripsy (IVL) devices for opening blocked arteries.
When receiving emergency surgery to open blocked arteries, there aren’t any options for modest budgets. The surgeon is either going to bill your insurance company for angioplasty or one of Shockwave’s devices.
Shockwave’s IVL devices are essentially catheters that use high-pressure sound waves to break up calcified deposits. Using IVL to treat calcified blood vessels is significantly more predictable and less prone to dangerous complications than angioplasty balloons that stretch vessels from the inside out.
Shockwave Medical is the only company out there with FDA-approved IVL devices. Soaring demand more than doubled sales year over year to $131 million in the third quarter, and 2023 is shaping up to be the company’s best year yet.
More rapid growth ahead
There are two important reasons we can expect the incredible growth we’ve seen from Shockwave Medical this year to continue in 2023 and beyond. First of all, it appears the percentage of percutaneous coronary interventions (PCIs) that can benefit from IVL treatment is higher than expected.
Each year cardiovascular surgeons perform around 6 million PCI procedures to open blocked arteries. We used to think there was a calcium component to about 30% of those blockages that would benefit from treatment with Shockwave’s IVL devices, but this is based on older imaging technology. Intravascular imaging, which is already used in nearly all PCI procedures in Japan, suggests there’s a calcium component to around 40% of blockages.
As intravascular imaging becomes standard the world over, the number of PCI procedures that can add one of Shockwave’s devices to the bill could rise by over half a million annually.
In addition to a larger, addressable patient population, receiving reimbursement for Shockwave’s devices will get much easier. In January, hospital payments for outpatient above-the-knee procedures increased from $5,000 to $7,000, which is greater than the cost of an IVL device from Shockwave. In the much larger market for coronary IVL, though, a transitional pass-through payment is still used to offset the cost.
Starting in 2024, there will be a level 1 Current Procedural Terminology (CPT) code specific to coronary IVL that currently doesn’t exist. An approved CPT code means there will be fewer hoops to jump through. This should give U.S. sales of Shockwave’s coronary IVL devices a big bump.
Cheaper than it looks
Right now, Shockwave Medical stock trades at the nosebleed-inducing multiple of 190 times trailing-12-month earnings. On the surface, this looks like an insane multiple that no business could be expected to grow into. Look a little deeper and you’ll see that revenue growth is outpacing operating expenses by such a wide margin that earnings could explode higher over the next couple of years.
With a patent-protected product that surgeons are clamoring for, we can expect revenue growth to continue outpacing operating expenses. Best of all, you can rest easy knowing it will take a lot more than a recession to prevent cardiovascular surgeons from using Shockwave’s IVL devices.
— Cory Renauer
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Source: The Motley Fool