Natera’s Stellar Sales Growth Trend Makes It A Wise Bet

We believe that Natera Inc. currently is a better bet compared to PVH Corp. Natera stock trades at 11x trailing revenues, more than that of PVH Corp, whose P/S multiple stands at 0.8x. Does this gap in the companies’ valuations make sense? We believe it does and we only expect this gap to widen. While both companies have performed well since the pandemic, Natera has seen much stronger revenue growth over the past few years compared to PVH. Natera, a clinic genetic testing company, has seen its sales rise from $212.5 million in FY ’16 to $565 million on an LTM basis, a more than 2x rise. On a comparable basis, PVH, a premium clothing brand manufacturer, saw its sales rise from $8.2 billion in FY ’16 to around $9.9 billion in FY ’19, before dropping to $7.1 billion in 2020 due to the pandemic. Sales have since recovered and currently stand at $8.8 billion on an LTM basis. However, PVH’s operating margins stand at 11.3%, much higher than Natera’s -68.3%. For details about Natera’s revenues and comparison to peers, see Natera Revenue Comparison.

Having said that, we dive deeper into the comparison, which makes Natera a better bet than PVH, even at these valuations. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at detailed historical revenue growth as well as operating income growth and financial position, combined with expected returns. Our dashboard Natera vs PVH: Similar Market Cap, But Natera Is A Better Bet has more details on this. Parts of the analysis are summarized below.

1. Natera’s Sales Have Risen Much Faster

Natera’s sales have risen from $212.5 million in FY ’16 to $391 million in FY ’20, and currently stand at a strong $565 million on an LTM basis, a jump of more than 2.5x over the past five years. In comparison, PVH’s sales rose at a much lower rate, from $8.2 billion in FY ’16 to just $8.8 billion on an LTM basis.

While PVH has seen a pre-Covid annual growth of 6.6%, higher than Natera’s 2.1%, Natera’s growth during Covid stands at 29.3%, much higher than PVH’s -28%. Additionally, for the most recent quarter, Natera’s sales grew 11.3% and 61.1% on an QoQ and YoY basis respectively, much higher than PVH’s 0.8% and 10.1%.

2. EBIT margins And Financial Position: A Mixed Bag

PVH’s LTM EBIT margin change vs the last three fiscal years is 10%, much higher than Natera’s -26.3%. Further, for PVH, current LTM margins stand at 11.3%, much more than that of Natera’s -68.3%.

However, PVH’s debt as a % of equity stands at 38.1% currently, much more than that of Natera. Additionally, PVH’s cash as a % of assets stand lower than Natera’s, at around 10.1%.

For additional details about PVH’s historical returns and comparison to peers, see PVH Corp Stock Return Comparison.

3. Finally, Natera Is Ahead In Terms Of Expected Returns

Using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Natera is currently the better choice. Natera’s LTM revenues of $565 million are expected to rise at a CAGR of around 11.6% as per our estimates, taking revenue numbers three years out to as high as $784 million. Assuming Natera’s P/S ratio to rise slightly, this means that the market cap would rise to $9 billion, an upside of almost 50% over three years.

In comparison, given historical trends, we expect PVH’s sales to rise slightly slower at a CAGR of 9.1%, taking revenue in three years to around $11 billion. However, considering the P/S for PVH, to remain at current levels, we estimate the market cap to rise 24% over this period, half that of the expected rise in Natera.

The Net of It All

While PVH’s sales are at a much higher level than Natera’s, the latter has witnessed stellar revenue growth over recent years. While PVH’s margins currently stand much higher, we expect Natera’s strong continued sales growth to reflect in its profitability in the near future. Due to this, we expect the gap between the two companies’ valuations to widen even further. As such, we believe that Natera stock is currently a better bet compared to PVH stock.

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