There has been a widespread sell-off in growth stocks over the last three months. DermTech (DMTK) stock fell 6 percent on May 13 and is now down 66 percent from its 52-week highs. What's the forecast for DMTK stock, and should you buy it on a dip?
DermTech manufactures and distributes specialty pharmaceutical products. The company provides medications for the early identification of skin cancer and inflammatory diseases. DermTech provides services to patients in the U.S.
What happened to DermTech stock?
On May 14, DermTech stock rose more than 12 percent after the company posted its first-quarter earnings results. The company reported an EPS of -$0.55, compared to -$0.53 in the prior-year period. The EPS missed analysts’ average estimate of -$0.42.
On the positive side, DermTech generated sales of $2.5 million in the first quarter, which marked a 62 percent rise YoY. The company beat analysts’ average sales estimate of $2.1 million. The significant growth in revenues is mainly because the billable sample volume grew 62 percent YoY to 9,400.
DermTech’s stock valuation
DermTech went public through a reverse merger deal with Constellation Alpha Capital SPAC. The company has a market capitalization of $842.7 million and an enterprise value of $774.5 million.
DermTech's valuation seems justified.
DermTech trades at a NTM EV-to-sales multiple of 64.4x. Exact Sciences (EXAS) and Veracyte (VCYT) have multiples of 9.5x and 9.4x, respectively. While DermTech’s valuations at first glance might seem daunting, the company’s robust growth rates and still significant growth potential seem to justify them.
DermTech’s stock forecast and Reddit discussion
According to Market Beat, analysts' average target price is $56 for DermTech stock, which is 92 percent above its current price. All of the seven analysts tracking DermTech recommend a buy. Their highest target price of $79 is 171 percent above the stock's current price, while their lowest target price of $20 is 31 percent below. DMTK isn't very popular on Reddit forums like WallStreetBets.
After DermTech’s first-quarter earnings results, Oppenheimer maintained its buy rating and a target price of $58 on the stock.
DermTech stock looks like a good buy.
DermTech stock looks like a good buy based on its strong growth outlook. The analysts polled by TIKR expect DermTech’s net sales to increase by 112 percent and 107 percent, respectively, in 2021 and 2022. The company faces an addressable market opportunity in skin cancer of about $10 billion.
DermTech’s non-invasive PLA (pigmented lesion assay) test is still at an early stage, but the company’s business is building momentum as more insurance companies approve the test and more dermatologists use it. The company’s test is patented and doesn't face any similar competition. In April, Cigna announced that it would start covering DermTech’s early-detection skin cancer test.
The best price to buy DermTech stock
DermTech stock is expected to go up with the growing demand for the company’s tests. Analysts' average price forecast suggests that DMTK stock has significant upside potential. The stock looks best to buy at its 200-day moving average of $29.