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Outset Medical: Continues To Impress

Apr. 04, 2021 4:35 PM ETOutset Medical, Inc. (OM)18 Comments


  • Outset Medical has seen continued commercial traction and provides a comforting guidance for 2021.
  • While the guidance is strong, I still believe it might be conservative given the recent commercial traction and potential of the home market.
  • Outset has everything going for itself to create a long-term multi-bagger and I am a happy holder here around the $50 mark.
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When Outset Medical (NASDAQ:OM) went public in September of last year, the stock attracted my interest. In November of last year, when the company released its first quarterly results as a publicly-traded company, I believed that the prospects for this medical firm looked good from the outset.

This medtech firm ticks all the boxes including spectacular growth, a real runway for growth, an approved product with good costs and quality improvements versus competition, and potential for further approval to only increase its addressable market.

The Tablo

Outset is known as the developer of the Tablo Hemodialysis Systems, with the benefit to reduce cost and complexity of dialysis in so-called acute and home settings. Basically, the system allows for dialysis anytime, anywhere, and to anyone. The machine only requires tap water and electricity to work, releasing patients and caregivers from frequent hospital and clinic visits.

The FDA-approved solution can be used in hospitals and clinics, but the real benefits are that this can be delivered in a home setting as well. This does not just result in greater cost savings but provides much greater convenience as well.

The potential market is huge as 800,000 people suffer from kidney failure, with spending on dialysis running at $70 billion a year. While Tablo was already approved by the FDA in 2014, this was for acute and chronic care in a controlled setting, with the home market segment being cleared in spring of 2020. That is very important, as the home setting is 4 times as large in terms of the market potential than the acute care market.

Valuation & Commercial Traction

Outset Medical went public at $27 in September, yet shares ended their first day of trading at $60, which worked down to a $2.2 billion operating asset valuation. That was a huge number for a business with just $2.0

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This article was written by

The Value Investor profile picture

The Value Investor has a Master of Science with specialization in financial markets and a decade of experience tracking companies via catalytic company events.

As the leader of the investing group Value In Corporate Events they provide members with opportunities to capitalize on IPOs, mergers & acquisitions, earnings reports and changes in corporate capital allocation. Coverage includes 10 major events a month with an eye towards finding the best opportunities. Learn more.

Analyst’s Disclosure: I am/we are long OM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (18)

So with yesterday's report here are numbers for revenue rounded in millions:

63% YOY this last quarter
Guidance is for 38% to 46% growth for 2022

Not bad!
The Value Investor profile picture
@alphatraz seems like a quality name indeed, being treated like the rest of the market.
Cambridge STR profile picture
I started buying shares under $40. Terrific growth and business model. Employees speak highly of this company and CEO on Glassdoor. Plus LinkedIn indicates aggressive hiring. Once the share price trend pivots upwards, we'll see share price growing as fast, or faster, than revenue growth.
The Value Investor profile picture
@williamwilliam Puzzling that the stock has sold off so hard, the actual product/company seems terrific. Time will tell. Best of luck.
Cambridge STR profile picture
@The Value Investor Thanks. As long as I feel confident that I would buy more shares, I don't mind the share price drifting down. OM is one of many recently IPO'd companied with high valuations having their shares sell off. Market trend.
Their gross margin is *negative* according to the Profitability tab on their main page here at SA.
Do they have any plans to fix that?
@alphatraz gross margin was 4.2% last quarter, check the press release
The Value Investor profile picture
@alphatraz just turned positive in the first two quarters of the year, but much more work to be done indeed.
Just posted amazing results with growth of 115% yet the stock is tanking.

EV/ sales now around 15.

I’m adding to my position here.
Why did this start tanking on Apr 30...I can't find any news that would cause that.
What’s a reasonable run rate expectation for their margins eventually? Their sales multiple is only reasonable if it’s going to be a very high margin business, like SaaS
The Value Investor profile picture
@GwailoHK Medtech names can easily post 20-25% operating margins.
To Early and to pricey for me 2.6 bil valuation on 50 mil sales could get hurt
I picked this one up in late February just as growth names started to be discarded. I’m surprised how well it has held up in the carnage. An excellent print certainly helped but that hasn’t stopped other strong performers getting trashed.
@Betternotbigger Dang you for saying the exact same thing I was going to say.. LOL.. #second
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