I recently called out Novocure as one of my top five favorite growth stocks for 2022. why here's
everything you need to know about the business my name is Brian Feroldi and my name is Brian Stoffel
thanks to stockcard.io for sponsoring today's video brian novacure is a $7 billion company that
trades under the ticker symbol nvcr the company's mission statement is to extend survival in some of
the most aggressive forms of cancer by developing and commercializing innovative therapy that's a
mouthful but it's also an inspirational mission novocure is a medical device company that is
focused on fighting cancer specifically tumorous cancer cells the company's founders discovered
more than 20 years ago that electric fields can be used to target and kill cancerous tumors almost
sounds like magic when you first learn about it you wear this device called optune on your head
and it emits electric fields those electric fields go to work disrupting cell division only
in cancerous tumors importantly this technology has already been fda approved for two different
conditions glioblastoma multiform which is brain cancer and mesothelioma which is cancer of the
internal organ tissues now this might sound like magical experimental technology but it's on the
market patients have been using this for years and it's widely reimbursed including by medicare
so this technology actually works the two key things to know about novicure's business model
is that it functions as a direct to patient model and the company is paid on a per patient
per month basis because of that a key metric that affects this company's financials is what's called
global active patients this is the number of active patients that are using the company's
technology we want to see this number continue to go up and to the right which it has for many years
now because this is a relatively new technology the customer acquisition costs can be high
as the company tells others what its technology can do however once it finds those customers
their spending is nearly recession proof and a hundred percent of the company's revenue
is recurring in nature now Novocure does benefit somewhat from high switching costs that's because
these devices have been shown to slow the growth of cancer but only while they're being used once
a patient starts using it the switching costs become very high to stop using and while the
company's brand name might not be all that well known this company benefits from fda approval
and it has a number of patents that protect its technology from competitors now we gave novacare
high marks for counter positioning but this one is worth explaining the company's technology cannot
and should not be used to replace chemotherapy radiation or surgery but the fact that it doesn't
compete with these we think actually adds a moat around the business because it's complementary
and we think nova cures moat is widening as the number of patients around the world that
use this technology continues to grow now looking at novakir's top line growth it's been relatively
impressive at a 29% annualized clip it's worth noting however that that growth has recently
slowed down one of the reasons i personally love looking at medical device companies is they
typically tend to be high margin that's definitely the case here as Novocure's gross margin is over
79$ Novocure has shown that it can be net income profitable however it has made the decision
to invest in its future and therefore has lost money on a gap basis over the last 12
months however its free cash flow horde has been growing the company's balance sheet is in decent
shape with almost twice as much cash as there is debt and because of that reinvestment its returns
on capital are currently negative novacare was founded more than 20 years ago by dr Yorim Palti
he has since retired from the company's board however it's worth noting that assaf donzinger the
current ceo has been at the helm pretty much since the start and he's been there for 20 years in that
role the company's glassdoor ratings are pretty good and they have been improving in recent years
the company's insider ownership took a hit when pulte retired from the board however it's still
at 4.6 which is about $320 million at the time of this recording now if there was one and only one
reason to invest in Novocure it would be because of the company's optionality the company has been
investing aggressively into its pipeline in order to take its technology and move into new types of
cancer this slide is a little bit old but it shows the enormous potential ahead of an elba cure if it
can successfully move into other types of cancer on the near-term horizon our brain metastases
and lung cancer which have vastly larger patient populations than the company's current indication
now as we already talked about the company has chosen to be net income negative while it invests
in its future meaning it's in the red however we believe there's tons of room for operating
leverage moving forward taking down the company's total just for market opportunity is tricky
some estimates we see suggest it's around $13 billion of which it's captured about four percent
however that number will grow substantially if Novocure can win fda approval in those additional
indications and the revenue growth here is largely organic it's taking a new and proven
technology and applying it to new cancers nova cure stock has been a great investment ever since
it came public and it has thumped the market over the last five years and that's despite
regularly missing wall street's estimates and given the fact that novacure is in the growth
stage it's not surprising to see that the company is not returning money to shareholders in any form
believe it or not but nova cure is literally the only company on the planet that is focused
on commercializing tumor-treating fields in that sense the competition is essentially irrelevant
dilution is not super high but it's something to be aware of because the company is using
stock-based compensation to bring on and retain key employees we think the risk of novaker being
disrupted is very low and if it was disrupted that likely meant that cancer was cured which is
this disruption that i would be perfectly happy to take on if you're not someone who's worked in the
medical field like myself understanding what the company does can be somewhat difficult if i had to
boil down novacure's risk to one thing it would be fda approval this is very much going to trade like
a biotech stock if it wins fda approval the stock should soar if it does not win fda approval the
stock should sink i think the odds are favorable but that is definitely the number one risk for
investors to watch and brian the market largely agrees with you it believes that it will gain fda
approval one way that we know that is that the stock is valued at over 12 times sales and over
60 times free cash flow so what's your investors watch moving forward the number one thing is the
company's pipeline a bet on novacure is a bet on its pipeline first and foremost
if it wins fda approval the stock's going to soar if it does not look out below second once
it does win that approval we need to see that new customers are using the product and while we wait
for that to happen the company's net income is likely to remain in net loss territory as it
funds its late stage pipeline this number is going to bounce around but eventually we want
to see profits moving in one direction up so how did novacure score on our investing checklists
for me this company got a 74. that number used to be higher however more recently this company
has been missing wall street's estimates and on my framework this got a nine and a half which is in
my investable range and is a very good score for a company that's this small and heavily reliant on
fda approval for its future all right brian both of our checklists give this company the thumbs
up so it's time to hold ourselves accountable to do so we're going to head on over to stockcard.io
and put this company into both of our thumbs up portfolios for you that's called the anti-fragile
portfolio so i'm going to scroll down to new orders i'm going to type in the company's ticker
which is nvcr i'm going to do a buy decision today's date is monday january 24th 2022.
it's a 63 stock so we're gonna be buying about 16 shares and the score for you was eight and a half
i'm gonna do submit then i'm gonna head over to my portfolio which is the brian for all the equality
checklist and i'm going to do the exact same thing and while brian does that we want to remind folks
that you can come over to stockcard.io and enter our beat the brian's contest this is where you
pick five stocks that you think will perform the best in 2022 and your goal is to beat us currently
there are over 425 people in this contest and the winner will get a thousand dollar cash prize
and with the market going down now is a great time to enter overall i think that nova cure is a
fascinating business but this is definitely one of the higher risk stocks in my portfolio brian's out