ZYXI - Zynex: A Reassessment

2023-10-03 17:23:34 ET

Summary

• Zynex, Inc. is a pain management company that manufactures and markets medical devices for chronic and acute pain treatment.
• The stock has fallen by half since we took a first look at it in April despite being profitable and having better than 20% revenue growth.
• Is Zynex now in the 'buy zone?" An updated analysis follows in the paragraphs below.

The only true wisdom is in knowing you know nothing .”? Socrates.

Today, we put Zynex, Inc. ( ZYXI ) in the spotlight for the first time in nearly six months. In our first article on this pain management and hospital monitoring concern, a recommendation was made to reassess the company if the stock dropped under ten bucks a share. This has happened recently in a market that has become more uncertain in recent months. Is Zynex now in the "Buy Zone?" An updated analysis follows below.

Company Overview:

The company is based in Englewood, Colorado, just outside of Denver. This small cap concern manufactures and markets medical devices to treat chronic and acute pain; and activate and exercise muscles for rehabilitative purposes via electrical stimulation. The stock currently trades just above eight bucks a share and sports an approximate market capitalization of $280 million.

The company's primary asset is a product called NexWave, which has a razor and razor blade model as the company sells both the product and the consumables that are part of the device. This makes up over 75% of overall sales. Zynex also sells knee braces and traction products. NexWave utilizes electrical stimulation to reduce pain in patients suffering from arthritis or localized pain. This spring the FDA greenlighted Zynex's CM-1600. This product is a non-invasive and wireless blood and fluid volume monitoring product intended for use in hospital settings.

The company also has several other products under development in its Hospital Monitoring division. These include a laser-based pulse oximeter, that is dubbed NICO as well as a monitor for early detection of sepsis. Zynex also has HemeOx under development which is a non-invasive laser-based monitor of total hemoglobin levels. Management states the hospital monitor business is a $3.7 billion market currently. NICO's marketing application should be submitted by the end of the year.

Second Quarter Results:

Zynex, Inc. posted its second quarter numbers on July 27th. The company had a GAAP profit of nine cents a share as revenues rose just over 22% on a year-over-year basis to a tad under $45 million. Earnings were a nickel a share over expectations while revenues were in line with the consensus.

The company saw a 51% year-over-year increase in device orders. Overall, device revenue came in at $13.7 million from $9.5 million in the same period a year ago. Services revenues grew more slowly to $31.2 million from $27.3 million in 2Q2022. Management maintained its FY2023 for revenue of $180-$200 million and diluted EPS of $0.40-$0.50 per share.

Analyst Commentary & Balance Sheet:

H.C. Wainwright reiterated its Buy rating and $20 price target soon after second quarter results hit the wires. Piper Sandler ($18 price target) and Ladenburg Thalmann ($28 price target) took similar ratings actions after first quarter results were posted.

Just over 30% of the outstanding float in the shares are currently held short. Two insiders sold just over $270,000 worth of stock collectively in early August. That has been the only insider activity in the shares so far in 2023. Zynex, Inc. repurchased $6.1 million of its common stock during the second quarter. Over the past five quarters, the firm has repurchased just over $36 million of its own shares. The company added $10 million to its repurchase authorization program in September.

Cash provided by operations during Q2 was $2.7 million and the company ended the first half of this year with just under $60 million worth of cash and marketable securities on its balance sheet . Zynex, Inc. raised $52.5 million via five percent convertible notes due in 2026 in May of this year.

Verdict:

Zynex made 44 cents a share of profit in FY2022 on just over $158 million in sales. The two analyst firms that have projections , see earnings falling 10% in FY2023 even as revenues increase in the low 20s. They do project earnings of 55 cents a share of earnings on similar revenue growth.

Zynex, Inc. is trading at roughly 20 times forward earnings and nearly 1.5 forward revenues. While nicely profitable, the valuation is only reasonable, not compelling. This is especially true given the increasingly uncertain market and large short position in the stock. Therefore, I am continuing to pass on any investment recommendation around ZYXI despite the shares falling by a third since the last time I looked at it and 20% plus revenue growth.

The truth is like salt. Men want to taste a little, but too much makes everyone sick .”? Joe Abercrombie.

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