Insulet stock (NASDAQ: PODD) currently trades at $156 per share, about 29% lower than the level seen in early June 2022, just before the Fed started increasing rates, compared to 14% gains for the S&P 500 during this period. This underperformance can partly be attributed to investors’ concerns about the potential negative impact of new diabetes drugs on the sales of Insulet’s insulin pumps. The reduced risk of cardiovascular events for obesity drugs of Novo Nordisk and likely Eli Lilly may result in broader applications of obesity drugs weighing on insulin pumps demand used to manage diabetes.
Interestingly, Insulet stock has had a Sharpe Ratio of 0.7 since early 2017, higher than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
Returning to the pre-inflation shock level of $318 means that PODD stock will have to gain more than 100% from here. We believe that will likely materialize over time. PODD currently trades at 10x revenues compared to its last five-year average of 19x, implying that the stock is undervalued. Insulet has enjoyed lofty valuation multiples in the past due to its strong top and bottom-line growth. Our Insulet Valuation Ratios Comparison dashboard has more details.
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2022 Inflation Shock
Timeline of Inflation Shock So Far:
- 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
- Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply
- April 2021: Inflation rates cross 4% and increase rapidly
- Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
- June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declines more than 20% from peak levels.
- July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline
- October 2022 – July 2023: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses
- Since August 2023: Fed keeps interest rates unchanged to quell fears of a recession, although another rate hike remains on the cards.
In contrast, here’s how PODD stock and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index.
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08).
- 3/1/2009: Approximate bottoming out of S&P 500 index.
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008).
Insulet And S&P500 Performance During 2007-08 Financial Crisis
PODD stock saw a 70% decline from $21 in September 2007 (pre-crisis peak) to $6 in March 2009 (as the markets bottomed out). It recovered sharply post the 2008 crisis to levels of around $14 in early 2010, rising about 133% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.
Insulet’s Fundamentals Over Recent Years
Insulet’s revenue rose 2x to $1.5 billion over the last twelve months, compared to $0.7 billion in 2019. Market share gains for its Omnipod system have buoyed Insulet’s revenue growth. The aging population in the U.S. and its rising awareness about diabetes products have aided the demand for insulin products. While the company saw stellar revenue growth, it saw its operating margin contract from 6.7% in 2019 to 5.8% now. Our Insulet Operating Income Comparison dashboard has more details.
Does Insulet Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?
Insulet’s total debt increased from $0.9 billion in 2019 to $1.4 billion now, while its cash increased from around $376 million to $675 million over this period. The company also garnered $152 million in cash flows from operations in the last twelve months. Given its solid cash cushion, the company is in a good position to service its near-term obligations.
With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe PODD stock has the potential for gains once fears of a potential recession are allayed. That said, the concerns over the broader application of obesity drugs and its impact on Insulet remain a key risk factor for realizing these gains.
|S&P 500 Return||-4%||13%||93%|
|Trefis Reinforced Value Portfolio||-6%||23%||532%|
 Month-to-date and year-to-date as of 9/25/2023
 Cumulative total returns since the end of 2016