IRMD - IRadimed: Which Way Now

2023-11-06 15:14:48 ET

Summary

• Today, we take our first look at a small medical device concern called IRadimed Corporation.
• The company is banking on continued demand for portable MRI devices and IV infusion pump replacement cycle to consistently power growth in the years ahead.
• IRadimed is delivering solid growth in both revenues and earnings and has a solid balance sheet.
• However, valuations seem a bit stretched, and stock has seen some considerable insider selling over the past few months.
• What's ahead of IRadimed?  An analysis follows below.

We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light .”? Plato.

Today, we put IRadimed Corporation ( IRMD ) in the spotlight for the first time. This MRI focused medical device concern roared ahead nearly 10% on Friday following Q3 results . However, the stock has also seen some significant and consistent insider selling in the shares. Time to take profits or is more upside ahead? An analysis follows below.

Company Overview:

The company is headquartered a three-hour drive north of me in Winter Springs, FL. IRadimed develops, manufactures, and markets magnetic resonance imaging ((MRI))-compatible medical devices, as well as related accessories and services. The stock currently trades right near $45.00 a share and sports an approximate market capitalization of $570 million.

While the company does have oversees sales, over 80% of overall sales comes from the United States.

The company sells devices like monitors and IV infusion pumps as well as consumables to healthcare clients. The company is banking on a new IV Pump replacement cycle and well as the growing demand for portable MRI solutions to power significant growth in the years ahead.

Third Quarter Results:

IRadimed posted its third quarter numbers on November 3rd, just before the trading bell on Friday. The company delivered non-GAAP earnings of 43 cents a share. GAAP earnings per share came in at 40 cents. Operating income rose 43% from 3Q2022 to $5.9 million. Revenues grew 23% on a year-over-year basis to $16.5 million. Domestic sales grew 29% Y/Y to $13.9 million, while international revenues were flat at $2.6 million.

Sales from the company's portable non-magnetic patient vital signs monitoring systems drove growth as sales rose some 40% from the same period a year ago to just over $7.7 million.

IV infusion pump revenue rose just one percent to just over $3.9 million. Sales from consumables rose just over 23% to just above $4.2 million in the quarter. Management provided the following, slightly upwardly revised forward guidance.

Analyst Commentary & Balance Sheet:

Lake Street reiterated its Buy rating and $60 price target on IRMD last week and Roth RKM ($55 price target) did the same early in August. That is the only analyst firm commentary I can find on IRadimed so far in 2023.

Just over one percent of the outstanding float is currently held short. The company's CEO and Chairman has been a frequent seller of the shares throughout 2023. So far in the second half of the year he has liquidated just under 180,000 shares, a bit over 40% of his stake in the firm as of the start of the third quarter.

According to the company's recently filed 10-Q , IRadimed ended the quarter with just over $45 million worth of cash and marketable securities on its balance sheet . It has no long-term debt. IRadimed has produced operational cash flow of $9.6 million through the first nine months of 2023, compared to $7 million in the same period a year ago.

Verdict:

IRadimed made $1.10 a share in profits in FY2022 on just over $53 million worth of revenues. The company produced $8.2 million of free cash flow in the 2022 fiscal year. The current analyst consensus sees profits rising to $1.39 a share on just $64 million in sales in FY2023 and $1.63 a share of earnings on revenue growth of 15% in FY2023.

IRadimed Corporation has done solid job of deliver both sales and earnings growth and management believes it can double sales from FY2022 levels by FY2025. The challenge is what valuation this growth should be rewarded. The company has less than a two percent free cash flow yield based on FY2022's results and trades at over 30 times forward earnings.

This is a bit too rich for my blood with interest rates near their highest levels since 2007. Therefore, I am passing on any investment recommendation on IRMD at these trading levels. If the stock trades back to the mid-$30s during the next overall pullback in the market, I will probably re-evaluate IRMD for a small initial position as the company has a good long-term growth story.

When you light a candle, you also cast a shadow .”? Ursula K. Le Guin.

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