NeoGenomics (NEO)

Oncology (cancer) diagnostics company NeoGenomics (NASDAQ:NEO) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 11.9% year on year to $187.8 million. The company expects the full year’s revenue to be around $723 million, close to analysts’ estimates. Its non-GAAP profit of $0.03 per share was in line with analysts’ consensus estimates.

Company Overview

Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ:NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.

The testing and diagnostics services industry plays a crucial role in disease detection, monitoring, and prevention, serving hospitals, clinics, and individual consumers. This sector benefits from stable demand, driven by an aging population, increased prevalence of chronic diseases, and growing awareness of preventive healthcare. Recurring revenue streams come from routine screenings, lab tests, and diagnostic imaging, with reimbursement from Medicare, Medicaid, private insurance, and out-of-pocket payments. However, the industry faces challenges such as pricing pressures, regulatory compliance, and the need for continuous investment in new testing technologies. Looking ahead, industry tailwinds include the expansion of personalized medicine, increased adoption of at-home and rapid diagnostic tests, and advancements in AI-driven diagnostics that enhance accuracy and efficiency. However, headwinds such as reimbursement uncertainties, competition from decentralized testing solutions, and regulatory scrutiny over test validity and cost-effectiveness may impact profitability. Adapting to evolving healthcare models and integrating automation will be key for sustaining growth and maintaining operational efficiency.

NeoGenomics competes with large laboratory companies like Quest Diagnostics and Laboratory Corporation of America, as well as specialized cancer diagnostics firms including Guardant Health (NASDAQ:GH), Natera (NASDAQ:NTRA), Exact Sciences (NASDAQ:EXAS), Caris Life Sciences, Tempus Labs, and Myriad Genetics (NASDAQ:MYGN).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $709.2 million in revenue over the past 12 months, NeoGenomics is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, NeoGenomics’s 10.8% annualized revenue growth over the last five years was decent. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. NeoGenomics’s annualized revenue growth of 11.1% over the last two years aligns with its five-year trend, suggesting its demand was stable.

This quarter, NeoGenomics reported year-on-year revenue growth of 11.9%, and its $187.8 million of revenue exceeded Wall Street’s estimates by 2.1%.

Looking ahead, sell-side analysts expect revenue to grow 9.6% over the next 12 months, similar to its two-year rate. Despite the slowdown, this projection is healthy and indicates the market is baking in success for its products and services.

NeoGenomics’s high expenses have contributed to an average operating margin of negative 19.7% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Looking at the trend in its profitability, NeoGenomics’s operating margin decreased by 2.3 percentage points over the last five years, but it rose by 3.1 percentage points on a two-year basis. Still, shareholders will want to see NeoGenomics become more profitable in the future.

In Q3, NeoGenomics generated a negative 14.4% operating margin.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

NeoGenomics’s flat EPS over the last five years was below its 10.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Diving into the nuances of NeoGenomics’s earnings can give us a better understanding of its performance. As we mentioned earlier, NeoGenomics’s operating margin declined by 2.3 percentage points over the last five years. Its share count also grew by 16.3%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q3, NeoGenomics reported adjusted EPS of $0.03, down from $0.05 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects NeoGenomics’s full-year EPS of $0.10 to grow 77.4%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

NeoGenomics’s demanding reinvestments have consumed many resources over the last five years, contributing to an average free cash flow margin of negative 9.8%. This means it lit $9.76 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that NeoGenomics’s margin expanded by 9.4 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise.

NeoGenomics burned through $10.25 million of cash in Q3, equivalent to a negative 5.5% margin. The company’s cash burn was similar to its $1.55 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

NeoGenomics’s five-year average ROIC was negative 10.1%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, NeoGenomics’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

NeoGenomics burned through $27.87 million of cash over the last year, and its $410.3 million of debt exceeds the $164.1 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the NeoGenomics’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of NeoGenomics until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

It was encouraging to see NeoGenomics meet analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Overall, we think this was still a solid quarter with some key areas of upside. The stock traded up 6.8% to $10.84 immediately after reporting.

Updated: December 4, 2025 at 10:57 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in NeoGenomics.

NeoGenomics falls short of our quality standards. Although its revenue growth was good over the last five years and Wall Street believes it will continue to grow, its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s rising cash profitability gives it more optionality, the downside is its operating margins reveal poor profitability compared to other healthcare companies.

NeoGenomics’s P/E ratio based on the next 12 months is 80.9x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $13.44 on the company (compared to the current share price of $12.12).