On Monday, BofA Securities adjusted its outlook on Inspire Medical Systems (NYSE:INSP) shares, a medical technology company. The firm's analyst reduced the price target from the previous $225.00 to $185.00 while maintaining a Neutral rating on the stock.
The revision reflects the analyst's view that Inspire Medical is experiencing "growing pains" and is in a phase of maturing as a business.
Despite these challenges, it is acknowledged that the company is still in the early stages of market penetration, with total addressable market (TAM) penetration in the single digits.
The analyst at BofA Securities projects a deceleration in revenue growth for Inspire Medical, from 50% in 2023 to mid-teens growth by the years 2025 and 2026. This anticipated slowdown is attributed to the difficulty in determining a sustainable growth rate for a more mature company.
The report further elaborates on the company's business model, which is described as intensive and requiring significant expenditure to facilitate growth.
The expectation is that it will take time for the company to achieve a level of profitability that can effectively drive its valuation. Consequently, the valuation of Inspire Medical is believed to be constrained by the enterprise value-to-sales (EV/sales) multiple.
In light of the revised growth outlook, the analyst has adjusted the valuation multiple for Inspire Medical to 5 times from the previous 7 times, aligning with the higher end of the valuation spectrum for unprofitable medical technology companies, which typically ranges from 1 to 5 times sales.
Additionally, the valuation year has been extended to 2026, leading to the new price objective of $185.00, based on 5 times the projected 2026 revenues, down from the prior target of $225.00. The Neutral rating on the stock has been reiterated, suggesting a stance of neither bullish nor bearish expectation for the stock's performance.
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