In this article, I am trying to write down succinct thesis why ETRM could be potential multi-bagger opportunity. The details of V-block therapy and effectiveness can be found on several articles published in SA in last few months. I will not focus on that. Please watch this video by UCLA surgeon regarding the device, and analysis of the clinical trial and promise of this procedure (youtu.be/md8fQSDWM4I)
Since there have been so many bearish articles published about this device, I would like to put forward my thesis why this could be multi-bagger opportunity at current price.
Today, ETRM announced its quarterly earnings for three months ended in June 30th, 2015, and gave us update about centers certified and surgeons trained for the procedure.
Annually 113,000 bariatric surgeries performed each year (www.ncbi.nlm.nih.gov/pubmed/20409518) and about < 20% of patients walk away from surgeons office who qualify for bariatric surgery without any surgeries because the patients don't like idea of anatomy altering surgeries which can involve cutting their part of intestine or stomach. So, Enteromedics maestro system offers a niche area for these groups of the patients.
Today the company announced that they have already trained 77 surgeons in 51 centers of excellence. Initially their target was about 20-25 centers. The management needs to be commended on this accomplishment, while the surgeons and centers must have also been enthused to offer this therapy to their patients which lead to accelerated training and centers being certified. It clearly hints that providers are enthused regarding prospect of this device, which I think is very welcome sign.
Conservatively estimating, if a surgeon performs 2 V-block therapies a month, then it would give 1900 ( 77 times 2 times 12 months) procedures a year. This would translate into revenue of 23 million approximately. I don't expect this number to materialize in next couple of quarters but even if it happens in next couple of years, it would be an excellent prospect.
If it trades at 5 the revenue then, it will be easily 4 times current valuation and if it trades at 10 times revenue then it will be 8 times current price.
So, I am very bullish on ETRM and I believe that it offers asymmetrical risk and reward profile at current valuation.
Disclaimer: I am long on ETRM. This is not an investment advice. Each investor is advised to do due-diligence before initiating any position on this stock.
Disclosure: I am/we are long ETRM.