Motley Fool’s “Small company with a $147 billion opportunity” De-teased

What's David Gardner's company that's "pushing the cancer industry into the future?"

By Travis Johnson, Stock Gumshoe, March 18, 2019

This weekend I started seeing new questions about a Motley Fool pitch, and it turns out to be a new one that I haven’t covered before.

The ad is for Motley Fool Rule Breakers, the growth-stock service helmed by David Gardner, and it’s apparently for a stock that he has recommended twice recently. Here’s a little taste of the email pitch:

“… let me tell you a little bit about why I was so excited about this stock, even before it returned 51% for members who bought on David’s recommendation in February.

“As a matter of fact, this is the second time David has recommended this company in less than a year! (It’s actually up 99% since that first recommendation.) And that just doesn’t happen very often.

“But it gets better. This is the second time he’s recommended the company… in the last 4 months.

“And when David Gardner gets THAT excited about a company, it pays off to listen.”

This is an investing style that’s not often very comfortable to me — and I suppose that’s part of why it works sometimes. David Gardner teaches growth investors to buy rising stocks, to buy more after they’ve risen, and to only pick stocks that conventional Wall Street analysts think are overvalued (among other “rule breaker” rules). The ad claims great success with similar re-recommendations in the past (including Zillow, Shopify and Intuitive Surgical, all recommended and then re-recommended within a few months after they had risen sharply, with huge gains after that.

I’m sure it doesn’t work every time, but the occasional 500-1,000%+ returns do help to make up for the good number of stocks that do poorly (both Rule Breakers and Stock Advisor, the somewhat lower-octane “flagship” letter for the Fool, typically have at least dozens and sometimes hundreds of stocks in their “active recommendations” portfolios even with regular re-recommendations, mostly because they rarely sell).

But anyway, what is this stock that Gardner is touting today? More from the ad:

“… on a recent Thursday, David released his “double up” rec.

“Can I be sure you’ll also see 80x returns on this company? Of course not! But I can tell you what excites me so much about this “double up” company.

“While it’s already up 99% since David first recommended it in Rule Breakers back in November, I think that’s only the beginning for this remarkable company.”

And then we get some clues that I can feed into the Thinkolator…

“This small healthcare company is revolutionizing cancer detection, diagnosis, and treatment technologies.

“And in doing so, they’re pushing a $147 billion cancer industry into the future….

“A small percentage of the 1.7 million new cancer cases in the U.S. last year experienced a faster, smoother, safer diagnosis, thanks to this company. Cancer patients with Blue Cross Blue Shield, Cigna, or Medicare can all take advantage of this company’s innovative new technology.”

So… hoodat? Thinkolator sez this is Guardant Health (GH), which went public just about six months ago and has really been tearing up the market in just the past six weeks or so, rising from the high $30s at the end of last year to top out right around $100 a few days ago before dipping back slightly to around $93 now.

But really, any specific price is hard to justify — it trades at 60X expected 2019 sales, with analysts penciling in roughly 50% annual revenue growth for a few years but no profits until at least 2022 as their operating expenses easily keep up with revenues (though the actual cost of testing doesn’t appear onerous, so they do at least have decent unit-level economics of 50%+ — worth noting, since scaling a business is much easier if the unit economics make sense). Would 40X sales make more sense? 20X? 100X? That’s a philosophical and future-telling question, not really an analytical one — you have to believe in their future and place decent odds on them growing and protecting a massive market share in cancer biopsies and testing to think 40X sales is reasonable, but you really need a similar belief to make 20X sales a rational number too.

This is a story stock that depends on the idea that it will dramatically boost usage of its liquid biopsy tests in various cancers, taking share from traditional biopsies as their genetically sequenced blood testing connects to their proprietary data sets and analytics system to help identify specific cancer types that respond to different treatments.

Will they? I have no idea. I had not looked at the company before this morning — it’s clearly a very attractive stock for the momentum-trading crowd, but that’s about all I know about them so far. You can see a little fan letter to them from Investors Business Daily here, and a free article from the Motley Fool summing up their quarter (reported last week) here (they also posted a transcript of the conference call here, if you want to see management’s own interpretation of where they are and where they’re going).

Guardant Health went public in early October, so the lockup period expires on April 2… which might provide a big of a dip if you’re interested in trying to build a position (that’s the day when insiders will be allowed to sell shares, something that is prohibited for usually six months after an IPO). It’s hard to know exactly what will happen, though, since the stock is so wildly story-driven.

Their big potential outside of their Guardant360 lung cancer screening blood test, which is performing well and getting increased insurance coverage, is the possibility that their blood tests could be used by much larger populations as a screening tool both for cancer recurrence and for early detection of cancer in people who have no cancer symptoms — that’s a new tool that is just beginning to be tested, they call this research LUNAR 1 and LUNAR 2, but they said last week that they’ll have some pilot data to release at the AACR meeting in a couple weeks, so that could generate some interest as well.

And beyond that, you’re on your own, I’m afraid. Diagnostic companies have posted incredible gains in the past, but they’ve also been touted to the stars and collapsed sometimes due to either failure to broaden their customer base or new competition or failure to satisfy insurance companies about the cost-effectiveness of new testing tools. I’m not able to guess at the odds for this one, but it’s certainly been an exciting growth stock so far in its young life as a public company.

Have a thought on Guardant Health to share? See great times continuing to roll? Worried about the valuation or the competition? Let us know with a comment below… thanks for reading!

And, of course, we always want to know what you think about the newsletters you’ve subscribed to — if you’ve ever tried out Motley Fool Rule Breakers, please click here to share your experience with your fellow investors. Thanks!


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tnvolfanTravis Johnson, Stock Gumshoedavebfoxeleanorrodger27 Recent comment authors

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mesh2222
Member
mesh2222

Travid

You mention early in the analysis that the Fool portfolio has “dozens and sometimes hundreds” of stocks in their recommendation portfolios. Can you talk about some of the big losers if there are any.

Thanks,

ibberman
Member
ibberman

Go-pro at $50.

Mark
Guest
Mark

Quite a few; but WPRT is a huge loser that stands out.

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ibberman
Guest
ibberman

DPLO ar $35.00

ibberman
Member
ibberman

DPLO at $35.00

ibberman
Member
ibberman

The list of losers is vast, but if you look at their list/tracking their recommendations, the losers get deleted from the list. Very deceiving.
They also claim if you buy 10-12 stocks from the list you will be ahead of the market.
With the amount of losers they have had, you could potentially have more losers than winners.

money tree
Member
money tree

Sorry if I’m stepping on your toes- but I’m so surprised someone would write what you wrote I’ve got to share my truth: As a long time member (12 years) of the Motley Fool, I disagree with this statement about deleting or being deceiving whole heartedly. They are entirely transparent and are very honest about their returns. Because their mission is “to amuse and enrich”- they really focus on education, using their losses to serve as learning experiences. Their losses are never deleted from their claimed returns. (are you a subscriber?- you can go to the “performance” tab on any… Read more »

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Paul
Guest
Paul

Valeant comes to mind, to name one. Ticker was VRX, was changed to BHC (Bausch Health Companies) as part of the rescue operation with new top management. Valeant also brought giant losses to hedge fund guy Bill Ackman, who got out at the bottom. Others early on were rightly suspicious of its business model, including the often-sensationalist short specialist Andrew Left, of Citron Research. Stamps.com just tanked, and had been favored by the Fool for a long time. Amazon was recommended many, many years ago, and had a lot of ups and downs before finally making lots of money for… Read more »

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Chris Manning
Guest
Chris Manning

They reccomended WPRT in the mid $30’s. That should tell you something

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vagentle
Irregular
vagentle

FEYE @ $30-$80.

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money tree
Guest
money tree

yeah, mee tooo! I loved that company- still own it…but don’t love it as much. I think there are safer/ better bets, but- great company

ibberman
Guest
ibberman

FEYE at 50.00

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rodger27
Irregular

Guardant Health is a true David Gardner find. It is very fast growing stock that always seems to be overpriced. The difference is that Dave Gardner’s stock continue to be overpriced for years and years – i.e. Netflix is an example. I bought this stock the day Rule Breakers recommended it and have added to it in small increments for the last 3 months. I think it will be a real winner. I have doubled my money already and will probably continue to buy if there is any dips in the price.

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Paula
Guest
Paula

Hi Travis,

I just joined your news letter after reading it since 2010. I just want you to know that the info that you provide is priceless. I so appreciate you. How do I learn when a company is going ipo? Thx

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garymatt
Irregular
garymatt

I admit that I am a stumbling investor at best but I find Stock Gumshoe priceless. I learn so much more than just the answer to some newsletter’s current hype. To maybe answer your question, while logged in to a Google account you can search to get to a page to set a “Google Alert”. I have one set to “IPO offering” and I often get several emails a week, each mail listing several companies that have filed an S-1. There may be a better and more official way to get this info but it works for me. You must… Read more »

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Robert Gill
Guest
Robert Gill

Have you an opinion on TheoTrade?

Jon
Guest
Jon

I bought into the 3-D printing stocks and lost my ass! Problem is you never know if the company’s or industry will succeed or not, and whether the stock will settle down in the future. Still waiting for 3-D or is it 4D to do something.

Tim
Guest
Tim

The fools were certainly recommending DDD back in the day. 3D printing was going to change everything. Everyone would have a 3D printer, not so much…
There was this military auction stock they were hyped about as well. Can’t remember name or ticker now.

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sooku
Guest
sooku

I’d like to point out that since they are not developing a treatment or therapy, they are immune to the lengthy and trap-prone FDA approval process. Therefore, the stock price can scale up dramatically in a short time.

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inve5tor
Member
inve5tor

Rule Breakers first recommended Guardant Health in November and re-recommended it in February. Didn’t do much after the first recommendation but more than doubled after the second. Nice to see them recommend something that hadn’t already gone up a lot.

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zeikette
Guest
zeikette

Guardant Health Inc
79.01
03/22/2019
-7.12%
03/ 24/19

chinadeep
Guest
chinadeep

rather get in on the ground floor of some the many China Biotech IPO’s about to hit the market https://chinadeep.info/top-10-bio-pharma-stocks-by-market-cap/

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rsferrari
Irregular
rsferrari

Hey Travis, At what price would you start to consider Guardant fir your porftolio. It’s now down to $76 and if I got this right at 26X sales.

rsferrari
Irregular
rsferrari

Hey Travis, At what price would you consider adding Guardan to your portfolio. It’s down to $76 and if I read it right, that’s 26X sales. Thx.

Colin in Kurrajong
Guest
Colin in Kurrajong

A few times I’ve fallen for the Fools’ “c’mon in pitches” and at one point a few years ago I actually subscribed to one of their newsletters. As folks above have mentioned they overhype the good stuff and ignore their frequent failings. In my opinion MF fails to deliver and I regret being foolish enough to have tried them yet again and been disappointed. Too much reliance on past glories, they pile on the b.s. and provide too little value. The Gardners should be put out to the flower bed–avoid!!

mobilecc
Member

Have followed Fool’s newsletters for years but only bought twice and was disappointed. The stories are always good and look promising, but by the time I see them on MF price is usually often high. The megawinners like AMZN are of course the exception but those are far between. As far as biotechs go, haven’t had much luck with individuals stocks because the development cycles for new drugs are years long and the chances of success or failure are usually binary due to unpredictability of test outcomes. I usually avoid ETFs because they often include too many dogs but in… Read more »

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tnvolfan
Irregular
tnvolfan

Great post mobilecc

rodger27
Irregular

I have been a motley fool subscriber from almost day one and I have done very well – mostly due to Netflix – I am up 5,000 % in NFLX. Almost every loser that has been quoted in the comments above were recommended by Motley Fool but not recommended in their two main newsletters – Stock Advisor and Rule Breakers. Their other newsletter such as Motley Fool Canada, Hidden Gems, etc. have dismal records. Just stick with Stock Advisor & Rule Breakers and only buy stocks recommended by the brother with the best track record – David Gardner. By the… Read more »

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eleanor
Irregular
eleanor

Rodger27, I also subscribed to Stock Advisor. Years ago I bought Apple at their recommendation. Made money but sold way too early.

I rarely see recommendation directly from David. Usually they come from someone work for David or Tom. What’s your opinion on the recommendation made by other people besides David?

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davebfox
Irregular

GH slammed past 2 days. Thoughts on closing in on an entry point, or still too pricey?

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