The word is out. All that it takes to become an “instant equity analyst” on social media is the ability to assimilate oxygen and repeat bull thesis mantras. Incessantly. Hordes of weekend warriors with little or no real-world finance experience find a stock to collectively cheerlead voraciously, and a self-fulfilling hype cycle gets created. These events are mostly driven by emotions rather than fundamentals, creating over-exuberant stock cults and skyrocketing valuations. “Muh rerate.”
Experienced investors know better. When a stock is being hyped, one of two things will happen as sure as death and taxes. Either fundamentals will catch up to the share price, or the valuation will revert to the mean. While a perpetually inflated stock could happen, it doesn’t because the lemmings eventually get bored and start chasing something else.
That’s why when shares of cancer testing firm Guardant Health $GH tripled in a year, we began to grow a bit worried. Is this just hype on display? Is there a growth in fundamentals to match?
Hype or Substance?
As long-term investors, we pay little attention to short-term stock performance. However, we couldn’t help but notice how over the past year, Guardant stock spanked its benchmark like a red-headed stepchild.
Since Guardant is far from profitable, we can’t value them using the traditional price to earnings ratio. Instead, we use our simple valuation ratio (SVR) which is market cap divided by annualized revenues. So for Guardant stock to justify such strong price appreciation we absolutely need to see strong revenue growth. Indeed Guardant’s revenue growth is set to accelerate for the third year in a row, an impressive feat.
Typically, as a company matures, revenue growth begins to decelerate. That’s because each year you’re starting with a higher base, making it difficult to achieve the same growth rate as previous years. Guardant is proving the opposite. Not only can they continue to grow, but they’re growing at a faster rate off a larger base. Preliminary 2025 results point to 33% year-over-year growth driven by “pioneering innovation” from their comprehensive test offerings. Formal 2025 results will be announced next month and then we can see what guidance they give for 2026 revenue growth. If history repeats itself, they’ll undersell their potential.
At the start of last year they guided to around 25% growth for 2025, then raised guidance to 31% growth, then beat it with 33% growth. The continued acceleration and “positive surprises” mean that growth investors are ascribing more value to the business because things are going better than expected. The story of a single platform for cancer screening and treatment is starting to be realized. We know that because they’ve given the whole thing a really cool name. Meet Guardant’s “Infinity Smart Platform.”
To Infinity and Beyond
Infinity is an analytical tool that helps patients quantify and characterize what type of cancer they have. It profiles a patient’s DNA, adds specific chemicals to the DNA to see how it reacts, looks for patterns in these reactions, then uses (wait for it) AI to identify the best treatment. It’s genomics meets AI meets personalized medicine: three disruptive tech themes in one investment.
This “Infinity Smart Platform” is just a better way to package the three product lines we’ve always known about – Shield (screening), Reveal (recurrence), and 360 (personalized medicine) – all of which we discussed in last year’s article about The Massive Cancer Blood Test Opportunity.
Shield, Guardant’s screening product, was the first FDA approved blood test for detecting colorectal cancer. The company set their sights on adding lung cancer detection into the same test, then eventually multiple types of cancers. Sure enough, they succeeded where Elizabeth Holmes failed, and Shield was granted Breakthrough Device Designation from the FDA for multi-cancer detection in June 2025. The FDA provides this limited approval status to devices that have the “potential to provide more effective treatment or diagnosis” for life-threatening diseases. One step closer.
In last year’s article, we pointed to Guardant having a solution for every step of the cancer testing journey, not just screening. This means cross-selling becomes key. Get a customer started on the Infinity platform via an annual blood test for all major types of cancer, then provide a treatment plan for anyone unfortunate enough to be diagnosed with cancer. Even after a successful treatment they can still receive recurring revenues from recurrence testing. Management validates this by saying that Reveal continues to be the company’s fastest growing product.
If there were ever a good time to raise capital it would be when a company is seeing their share price surge to lofty valuations. That way they receive more capital in exchange for giving away less equity, and it’s precisely what Guardant decided to do.
Topping Up On Cash
In November 2025, Guardant’s management decided to cash in on all this success and refill their coffers by selling $250 million in stock and issuing $350 million in convertible notes.
The stock sale is straightforward: management is offering brand new shares, diluting existing shareholders, but raising cash. The convertible notes are a bit more nuanced. Essentially the company is borrowing money from large investment banks to be paid back in seven years with no interest. The catch is these banks can choose to convert the notes into GH shares at roughly $121.50 per share. This is above the current share price of $118, but if Guardant stock continues to soar, current investors might get diluted or face selling pressure as banks convert their notes to shares and offload them.
What does Guardant plan to do with an additional $600 million? According to management, they wanted to “strengthen their balance sheet” to support adding an additional 250 sales reps. We like to see a growth stock investing in growth. They also may be preemptively paying off previous convertible notes that come due in 2027 – kicking the can down the road.
Their current debt load sits at about $1.6 billion, the bulk of which is these notes. With “just” $800 million in current assets (anything that can be turned into cash within a year) prior to the raise, it seems prudent for Guardant to be strengthening their balance sheet. Ideally, this raise will help Guardant get to cash flow breakeven without having to sell any more equity or take on any more debt.
They’re making progress. Cash burn was down 16% in 2025, from $275 million to $230 million, and they have visibility into positive free cash flows by end of 2028. Ramping up their Shield test seems to be dragging down profitability as management claims their non-screening business broke even in Q4 2025. In looking at gross margins as a key indicator of future profitability potential, we see consistency and strength.
Comparing these gross margin numbers to mature testing companies like Exact Sciences $EXAS (low 70s) or Natera $NTRA (low 60s) leads us to believe their potential for profitability is good. In a few years we’ll expect to see operating margins become positive and start trending upwards as they enjoy the “operating leverage” which comes from properly scaled businesses. With enough cash to get there, we’re left wondering if the revenue acceleration can continue.
Concerns Around Guardant Stock
Things seem to be coming together for Guardant which is precisely when we want to be even more critical. While they’re executing, valuation has been increasing. We use a simple valuation ratio which divides market cap by annualized revenues. Guardant’s current SVR of 13.9 is well above their 6.4 average over the past four quarters.
To put that number into context, our catalog average is about 7.5 while we find anything three times our catalog average – about 22.5 – to be too rich. The impressive growth and general optimism surrounding the company mean it ought to command a better-than-average premium, and it does.
Thinking about concerns and where bad news might come from, one big red flag from 2023 was Guardant’s heavy dependence on Medicare, 33% of total revenues and 44% of precision oncology. While those numbers aren’t provided with any degree of consistency these days, the amounts to be reimbursed are often less than commercial payers and they’re at risk of numerous problems that can befall a relationship with a government entity that is currently part of an objectively volatile administration.
Another concern surrounds how Natera seems to be dominating with their recurrence test offering for multiple types of cancer including CRC, breast, lung, bladder, and ovarian cancers. The test requires an initial tumor biopsy (tissue sample), and results in a blood test that detects cancer recurrence. For Guardant’s Reveal which currently targets CRC, no tumor sample is needed which expands their total addressable market given that one-third of colorectal cancer incidents aren’t eligible for a biopsy.
We’re predominantly interested in the success of Guardant’s screening offering, Shield, because that’s where all the leads will come from for their other product offerings. Early detection is the closest we’ll get to a cure for cancer right now. Survival rates skyrocket for many cancer types if caught early. That’s reason enough to promote regular screening which – especially if covered by Medicare – seems like a no brainer addition to your annual check up.
That brings us to Grail $GRAL which is seeing very strong revenue growth from their multi-cancer detection test which isn’t actually FDA approved. Still, they’re able to sell it through a “laboratory-developed test” loophole. Negative gross margins make them appear deceptively unprofitable, but that’s because of some accounting stuff (amortization of intangible assets if you’re interested) resulting from when they parted ways with Illumina $ILMN. With shares up +400% over the past year and an SVR of 31, Grail shares look significantly overvalued right now. Still, it’s probably worth a closer look in a future piece to see what all the excitement it about and how Grail’s progress threatens Guardant.
Conclusion
Going forward, good news is the norm for Guardant because they’re priced for it. Any deviation from the accelerating growth story will see shares fall just as quickly as they rose. Seeing the company raise capital under favorable conditions, along with their estimates of reaching positive free cash flow by 2028, mean that debt can be sufficiently managed and dilution kept at bay while the company waits for operating leverage to kick in as they continue scaling. We’ll check back in a year to make sure everything is on track.