Unveiling Inspire Medical Systems (INSP)'s Value: Is It Really Priced Right? A Comprehensive Guide
On October 11, 2023, Inspire Medical Systems Inc (NYSE:INSP) experienced a day's loss of -10.88%, marking a 3-month decline of -41.1%. The company posted a Loss Per Share of 1.44. Despite these figures, our analysis suggests that the stock might be significantly undervalued. Read on to explore our valuation analysis of Inspire Medical Systems (NYSE:INSP).
Company Introduction
Inspire Medical Systems Inc operates as a medical technology company, focusing on the development and commercialization of minimally invasive solutions for patients with obstructive sleep apnea (OSA). The company offers the Inspire system, a neurostimulation technology that provides a safe and effective treatment for moderate to severe obstructive sleep apnea. Inspire Medical Systems has operating footprints in the United States and Europe, generating a majority of its revenue from the United States.
Despite a market cap of $4.80 billion and sales of $526.10 million, the company's stock price stands at $165.2, significantly lower than its GF Value of $568.96. This discrepancy prompts a deeper look into the company's value.
Understanding GF Value
The GF Value is a proprietary measure that indicates the intrinsic value of a stock. It is derived from three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page represents the fair value at which the stock should ideally be traded.
When the stock price is significantly above the GF Value Line, the stock is likely overvalued, indicating poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock is likely undervalued, suggesting higher future returns. In the case of Inspire Medical Systems (NYSE:INSP), the current stock price of $165.2 per share indicates significant undervaluation.
Given its undervaluation, the long-term return of Inspire Medical Systems' stock is likely to be much higher than its business growth.
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Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Key indicators like the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. Inspire Medical Systems has a cash-to-debt ratio of 19.99, which ranks better than 75.51% of 833 companies in the Medical Devices & Instruments industry. GuruFocus ranks Inspire Medical Systems's financial strength as 8 out of 10, suggesting a strong balance sheet.
Evaluating Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Inspire Medical Systems has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $526.10 Mil and Loss Per Share of $1.44. Its operating margin is -10.19%, which ranks worse than 58.31% of 830 companies in the Medical Devices & Instruments industry. GuruFocus ranks the profitability of Inspire Medical Systems at 3 out of 10, indicating poor profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Inspire Medical Systems is 61.5%, which ranks better than 94.22% of 727 companies in the Medical Devices & Instruments industry. However, the 3-year average EBITDA growth rate is -4.1%, which ranks worse than 68.36% of 730 companies in the Medical Devices & Instruments industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Inspire Medical Systems's ROIC was -86.87 while its WACC came in at 13.44.
Conclusion
In conclusion, the stock of Inspire Medical Systems (NYSE:INSP) gives every indication of being significantly undervalued. The company's financial condition is strong, but its profitability is poor. Its growth ranks worse than 68.36% of 730 companies in the Medical Devices & Instruments industry. To learn more about Inspire Medical Systems stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
