Buy or Sell Inspire Medical Systems Stock?

Inspire Medical Systems (INSP) stock has jumped 31% during the past day, and is currently trading at $117.29. We believe there are only a couple of things to fear in INSP stock given its overall Strong operating performance and financial condition. This is aligned with the stock’s High valuation because of which we think it is Fairly Priced.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $3.4 Bil in market cap, Inspire Medical Systems provides minimally invasive solutions for obstructive sleep apnea diagnosis and treatment, enhancing patient care through innovative medical technologies.

[1] Valuation Looks High

This table highlights how INSP is valued vs broader market. For more details see: INSP Valuation Ratios

[2] Growth Is Very Strong

• Inspire Medical Systems has seen its top line grow at an average rate of 37.7% over the last 3 years
• Its revenues have grown 17% from $756 Mil to $883 Mil in the last 12 months
• Also, its quarterly revenues grew 10.5% to $225 Mil in the most recent quarter from $203 Mil a year ago.

This table highlights how INSP is growing vs broader market. For more details see: INSP Revenue Comparison

[3] Profitability Appears Weak

• INSP last 12 month operating income was $37 Mil representing operating margin of 4.2%
• With cash flow margin of 15.1%, it generated nearly $134 Mil in operating cash flow over this period
• For the same period, INSP generated nearly $45 Mil in net income, suggesting net margin of about 5.0%

This table highlights how INSP profitability vs broader market. For more details see: INSP Operating Income Comparison

[4] Financial Stability Looks Very Strong

• INSP Debt was $33 Mil at the end of the most recent quarter, while its current Market Cap is $3.4 Bil. This implies Debt-to-Equity Ratio of 0.9%
• INSP Cash (including cash equivalents) makes up $323 Mil of $808 Mil in total Assets. This yields a Cash-to-Assets Ratio of 39.9%

[5] Downturn Resilience Is Weak

INSP has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• INSP stock fell 61.6% from a high of $326.08 on 14 July 2023 to $125.26 on 13 November 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $251.19 on 2 May 2024 , and currently trades at $117.29

 
2020 Covid Pandemic

• INSP stock fell 53.7% from a high of $89.92 on 2 March 2020 to $41.62 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 17 June 2020

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read INSP Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.