SENS - Senseonics: Remains High-Risk Despite Stock Price Declines

Summary

• Senseonics offers innovative solutions with glucose monitoring systems that provide less invasive alternatives to current devices in the market.
• The company is expected to see aggressive growth in 2023 despite unimpressive results for the 2022 fiscal year.
• SENS remains a very high-risk choice in a niche part of the healthcare sector.

Thesis

In a previous analysis on Senseonics (SENS), a growing glucose monitoring system manufacturer in the healthcare sector, on March 10, 2022, I outlined a bearish view for the stock over the mid-term after it already sustained significant losses in terms of stock price declines. Since then the stock has seen more downside movement and elevated volatility. In this analysis, I offer relevant updates to my thesis regarding the company's financial situation and prospects.

Stock Price Performance

Over the trailing 12 months Senseonics has seen yet another large stock price decline of -34.68%. The stock keeps displaying elevated volatility and aggressive price swings, while also being heavily shorted on the market (14% short interest). SENS trades at $1.13 per share ($540M market capitalization), -53% from 52-week highs and pays no dividend. The stock's 52-week low stands at $0.77 per share.

Unhealthy Habits Create a Growing Market

The global continuous glucose monitoring devices market was estimated to be valued at USD 7,816.8 million in 2022 and is estimated to expand at a compound annual growth rate ((CAGR)) of 4.4% from 2023 to 2030. grandviewresearch.com

Obesity and unhealthy living habits in general are said to have contributed to increases in diabetes cases over time. The International Diabetes Federation claimed that, more than 530M people were diagnosed in 2021. This number is forecasted to increase to over 640M by 2030 and 780M by 2045.

The market is large enough to allow for strong growth for a smaller competitor like Senseonics, while the moderate growth prospects should carry stability through the long-term. The main factors driving growth include increasing cases of diabetes across the globe as well as growing adoption rates for continuous monitoring systems. Currently, The United States occupies a significant share of the global market at almost 40%, while remaining the primary market of operations for Senseonics.

Business Prospects

There is no doubt that Senseonics' product offerings, FDA-approved implantable continuous glucose monitoring systems, are unique and rather innovative. The systems make an excellent case for millions of patients around the world struggling with diabetes. What the company offers compared to competitors like Medtronic ( MDT ), Abbott Labs ( ABT ) and others is a system than is far less invasive and requires significantly less frequent replacement/maintenance. Real-time monitoring features, rechargeable transmitters and mobile application connectivity also add to the appeal of Senseonics' smart medical devices. The company reaches the end-user/patient through healthcare providers and a network of distributors and strategic fulfillment partners.

As with many innovation-focused, small-cap healthcare firms, risk is high and expertise in the field is needed by potential investors and analysts to fully understand the company's potential, as well as the ability of its products to effectively penetrate the market in the long-term. What becomes evident as we examine the company is the forecasted sales acceleration as more insurance reimbursement for Senseonics' monitoring devices becomes available.

Financials and Risks

At the end of 2022, Senseonics reported another round of financial results for the third quarter of the fiscal year. Management lowered revenue expectations for 2022 (forecasting $15M to $17M), inviting yet another negative reaction in the market. For 2023, however, analysts expect a large revenue increase to $31M. Senseonics is not expected to achieve bottom-line profitability in the next couple of years. Considering that the stock still trades at very aggressive valuation multiples, in the case that this significant increase in sales is not materialized, more downside will lie ahead.

The company's extremely aggressive valuation also invites more risk for potential investors. A P/S ratio over 30x points to a substantial expected acceleration in growth unlike the company has seen before, discounted in the market. However, competitive pressures and a moderately growing sector fail to instill confidence that these results are likely.

A major dilution threat also becomes evident when looking into the company's financials. As expected, in order to fund operations through unprofitable years Senseonics has dramatically increased its shares outstanding. The company has expanded its diluted share count from 89M in 2016 to 568M as of Q3 2022. Given that net losses are set to persist for at least a couple more years, shareholders most likely face more dilution ahead.

The company's outstanding debt has also increased significantly, from $15M in 2016 to $52M in 2022, despite still accounting for a rather small percentage of the total market cap. On the other hand, liquidity appears strong and Senseonics also maintains a $35.5M cash balance.

Final Thoughts

Senseonics is a company still going through its growth phase in a specialized, niche market in the healthcare sector. While FY2022 results are expected to indicate unimpressive growth momentum, Senseonics is expected to record significant growth in the mid-term as its innovative products penetrate the market. Still, from an investor's perspective the stock carries significant amounts of risk and can be expected to carry substantial volatility in the short-term.

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