Senseonics Holdings Inc. (NYSE:SENS) is a small-cap U.S healthcare technology company, focusing on manufacturing glucose monitoring systems. While still in an early phase of its cycle, the company displays many alarming signs that include inconsistent revenue growth, lack of profitability, shareholder dilution and others, explored throughout this analysis. The stock has seen aggressive fluctuations even before the market entered its recent correction phase, determining Senseonics' stock as more or less dangerous for the current environment.
Senseonics is a U.S.-based medical technology company that focuses on the development and marketing of a long-term, implantable, continuous glucose monitoring system (CGM), the company calls Eversense. The system is both removable and rechargeable, while an app for on-demand monitoring is also available for patients. The system's main objective is to contribute to better diabetes management for patients, as it detects 95% of hypoglycemic and 99% of hyperglycemic events.
The Eversense system comes in three distinct parts, a sensor that is inserted by a healthcare professional, a removable, rechargeable and water-resistant transmitter, and finally a mobile app that is able to provide real-time glucose levels measurements. In the early spring of 2022, the company is expected to roll out the upgraded E3 CGM system, which can last up to 6 months, double the duration of previous models.
Over the past year, Senseonics stock has been on a bumpy ride, filled with volatility, recording a significant 40% loss for the trailing 12 months. Since the company became public in late 2015, the stock has marked an overall -13% return, having investors and analysts questioning the long-term trajectory of the company. Currently, SENS trades at $1.75 per share with an $800 million market capitalization and pays no dividend.
Total revenue for the fourth quarter was $4.0 million compared to $3.9 million for the fourth quarter of 2020, displaying minimal growth. Net income was positive in Q4 2021, compared to a net loss of $101.6M (-$0.41 per share), in Q4 2020 as the company transitions towards profitability. Revenue guidance for 2022 looks for $14M-$18M, below initial consensus estimates of $18.74M. In other non-financial developments, Senseonics received approval from the Food and Drug Administration (FDA) for the innovative Eversense® E3 CGM System. The E3 commercial launch in the U.S. at the beginning of April 2021.
Despite an overall uptrend in revenue over the past five years, still, the company's top-line growth is very inconsistent. After bringing in $20 million of revenue in 2019, affected by Covid-19 related disruptions, the company saw a massive retraction in sales during 2020, with sales only amounting to $5 million. The 2021 fiscal year marked somewhat of a rebound in revenue growth, yet the company has not met its pre-pandemic sales numbers and is not expected to until 2024. Since 2017, revenue has grown at a 16% CAGR, despite aggressive YoY fluctuations.
Net income generation paints an even worse picture since Senseonics has yet to post a profitable year, even though losses appear to be decreasing. The company has been recording negative cash flows from operating activities for many years now, while at the same time dramatically increasing shares outstanding. The significant dilution Senseonics' shareholders are facing is a major warning sign that perhaps the stock should be avoided unless a clear path that provides the company with positive operating cash flows is established.
On the balance sheet side, liquidity concerns should not arise, when we considered a very high 7.9 current and 7.2 quick ratio. That said the company's long-term liabilities are increasing quickly, having doubled since 2020.
On the topic of headwinds the company is facing, regulatory requirements should be added, even though they go without saying in the healthcare sector. Regulations bring about higher costs in order to comply, and even higher ones if a company fails to do so.
There are many characteristics the stock displays that can deem it as a speculative name, generally to be avoided by more traditional investors.
Volatility: The stock displays high volatility with extreme price swings occurring regularly, despite an overarching downtrend. Its short-lived trading history of 6 years also contributes to higher uncertainty around price movements.
Inconsistent financials: As explored in the previous segment, revenue growth inconsistency and overall lack of profitability lead to large price swings every time the company reports earnings that deviate from estimates. Analysts also struggle to determine appropriate price targets and consensus estimates. Uncertainty around long-term term profitability capacity generally tends to keep investors away.
Low volume & liquidity: At just an $800 million market cap, Senseonics is a small-cap stock. Known for low liquidity and wide bid-ask spreads, small caps, especially more growth-oriented ones, tend to appeal mostly to traders with an increased appetite for speculation.
Valuation multiples: Given that Senseonics is not profitable it can not be valued on a P/E multiple or on a Discounted free cash flow basis, since the company is not cash flow positive. On the P/S and EV/S multiples that are available, the company appears to be trading at absurd multiples (FWD 52x and 46x respectively).
After all things are considered, there are just too many things that constitute red flags for an investor to consider Senseonics' stock. Even though there is promise in the Eversense product offering, the company has a long way to go to convince investors and analysts about its future. Despite offering an innovative product the company also lacks the diversification a wider product range would bring to the table. Especially after considering the current market environment, filled with uncertainty and volatility, I would rate the stock as a sell.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.