Natera (NTRA)

Genetic testing company Natera (NASDAQ:NTRA). reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 36.5% year on year to $501.8 million. The company’s full-year revenue guidance of $1.98 billion at the midpoint came in 3.1% above analysts’ estimates. Its GAAP loss of $0.50 per share was 21.4% above analysts’ consensus estimates.

Company Overview

Founded in 2003 as Gene Security Network before rebranding in 2012, Natera (NASDAQ:NTRA) develops and commercializes genetic tests for prenatal screening, cancer detection, and organ transplant monitoring using its proprietary cell-free DNA technology.

Over the next few years, immuno-oncology companies, which harness the immune system to fight illnesses such as cancer, faces strong tailwinds from advancements in precision medicine (including the use of AI to improve hit rates) and growing demand for treatments targeting rare diseases. However, headwinds such as rising scrutiny over drug pricing, regulatory unknowns, and competition from larger, more resourced pharmaceutical companies could weigh on growth.

In women's health, Natera competes with Laboratory Corporation of America (LabCorp), Myriad Genetics, Quest Diagnostics, Illumina's Verinata, BillionToOne, and PerkinElmer. In oncology, its competitors include Guardant Health, NeoGenomics, Tempus Labs, Exact Sciences, and Personalis. In organ health, Natera's primary competitor is CareDx.

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 $1.83 billion in revenue over the past 12 months, Natera 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. On the bright side, Natera’s smaller revenue base allows it to grow faster if it can execute well.

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Natera grew its sales at an incredible 40.9% compounded annual growth rate. Its growth surpassed the average healthcare company and shows its offerings resonate with customers, a great starting point for our analysis.

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. Natera’s annualized revenue growth of 45.3% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

We can better understand the company’s revenue dynamics by analyzing its number of tests processed, which reached 855,100 in the latest quarter. Over the last two years, Natera’s tests processed averaged 24.3% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Natera reported wonderful year-on-year revenue growth of 36.5%, and its $501.8 million of revenue exceeded Wall Street’s estimates by 12.5%.

Looking ahead, sell-side analysts expect revenue to grow 9.4% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is admirable and indicates the market is baking in success for its products and services.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Natera’s high expenses have contributed to an average operating margin of negative 38.6% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out.

On the plus side, Natera’s operating margin rose by 42 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 50.1 percentage points on a two-year basis. These data points are very encouraging and shows momentum is on its side.

In Q1, Natera generated a negative 15.8% operating margin.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although Natera’s full-year earnings are still negative, it reduced its losses and improved its EPS by 5.1% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability. We hope to see an inflection point soon.

In Q1, Natera reported EPS at negative $0.50, up from negative $0.56 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Natera to perform poorly. Analysts forecast its full-year EPS of negative $1.47 will tumble to negative $1.82.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Natera’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 27.2%, meaning it lit $27.23 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that Natera’s margin expanded by 58.3 percentage points during that time. In light of its glaring cash burn, however, this improvement is a bucket of hot water in a cold ocean.

Companies with more cash than debt have lower bankruptcy risk.

Natera is a well-capitalized company with $991.6 million of cash and $183.4 million of debt on its balance sheet. This $808.2 million net cash position is 3.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Natera blew past analysts’ sales volume expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock traded up 1.6% to $165.50 immediately after reporting.

Updated: May 10, 2025 at 11:22 PM EDT

Are you wondering whether to buy Natera or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Natera is an amazing business ranking highly on our list. For starters, its revenue growth was exceptional over the last five years. And while its operating margins reveal poor profitability compared to other healthcare companies, its growth in tests processed was surging. Additionally, Natera’s rising cash profitability gives it more optionality.

Natera’s forward price-to-sales ratio is 10.1x. Looking at the healthcare landscape today, Natera’s qualities really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $191.67 on the company (compared to the current share price of $152), implying they see 26.1% upside in buying Natera in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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