ZYXI - Zynex: Seems An Odd Short Target

2023-04-18 12:23:47 ET

Summary

• Today, we put pain management therapy concern Zynex, Inc. in the spotlight for the first time.
• Revenues are growing at a healthy clip and the company is nicely profitable. However, Zynex, Inc. stock has a large short interest in the shares.
• Are the Bears or Bulls correct on Zynex? An investment analysis follows in the paragraphs below.

Some old wounds never truly heal, and bleed again at the slightest word .”? George R.R. Martin.

In this article we take a deeper look at Zynex, Inc. ( ZYXI ) . The company recently reported that preliminary order growth in the first quarter was up a record 61% on a year-over-over basis. It was noted when the news came across the wires last week that:

First quarter revenue is affected by the resetting of health insurance deductibles in the beginning of a calendar year; seasonably lower revenues in the first quarter are a historical trend for Zynex and an industry norm ."

Management also kept FY2023 sales guidance the same as was reiterated following fourth quarter results. Can the company's momentum continue? An analysis follows below.

Company Overview:

Zynex, Inc. is headquartered just outside of Denver in Englewood, CO. This small cap medical technology company specializes in the manufacture and sale of non-invasive medical devices for pain management, rehabilitation, and patient monitoring. Currently the stock trades right at $12.00 a share and sports an approximate market capitalization of $440 million.

The company's core product is called NexWave. This device utilizes electrical stimulation to reduce pain in patients suffering from arthritis or localized pain. The company also sells other devices like knee braces and traction devices. The company makes money both from device sales as well as the consumables used to operate them. The company offers other products such as knee braces and traction devices. It has upcoming product launches (see section below), but currently NexWave is responsible for approximately 80% of overall sales.

The company has other planned product launches on the horizon. CM-1600 (commercial launch this year) with HemeOx and Ni-CO CO-Oximeter due on the market in 2024. A recent article on Seeking Alpha covered these devices in more detail. The CM-1600 is a non-invasive wireless blood and fluid monitor to be used in a hospital setting. It is expected to have a per unit cost of approximately $30,000.

Fourth Quarter Results:

On March 13th, the company reported its fourth quarter numbers . Zynex had GAAP earnings of 20 cents a share, beating the consensus by a penny. Revenues rose nearly 21% on a year-over-year basis to $48.8 million, slightly below consensus. Orders grew a record 48% from the same period a year, the third straight quarter (now four based on last week's company announcement) that orders experienced record year-over-year growth.

Device/Product revenue increased 19% to $15.9 million compared to $13.3 million in the fourth quarter of last year. Supplies/Consumables revenue increased 22% year-over-year to $32.9 million from $27 million. For all of FY2022, Device revenue rose 19% to $43.5 million and Supplies sales gained 22% year-over-year to $114.7 million.

Management provided FY2023 sales guidance of between $180 million to $200 million. The analyst firm consensus estimate at the time called for just over $195 million in revenues for this fiscal year. Leadership also provided earnings guidance of between 40 to 50 cents a share of profit for FY2023, below the 52 cents a share consensus at the time.

Zynex is seeing impressive productivity gains. Revenue per sales representative in 2022 grew 31% over 2021. In the fourth quarter it grew 17% over the same period a year ago.

Analyst Commentary & Balance Sheet:

Since Zynex posted fourth quarter results, both Ladenburg Thalmann ($28 price target) and H.C. Wainwright ($20 price target) have reissued Buy ratings on the stock. Bears have a different take, as nearly 22% of the outstanding float in the shares are currently held short.

There has been no insider activity in this stock so far in 2023. The company ended FY2022 with just over $20 million in cash and marketable securities on the balance sheet and working capital of $48.5 million. For FY2022, the company had $13.7 million in operational cash flow versus basically breaking even on a cash flow basis in FY2021. Zynex had just over $5 million of long-term debt as of the end of the 2022 fiscal year. The company announced it added $10 million to an existing stock buyback authorization in November.

Verdict:

The current analyst firm consensus has Zynex making 47 cents a share of profit in FY2023 as sales rise just over 20% to just north of $190 million. Projections call for 67 cents a share of earnings in FY2024 on slightly faster revenue growth.

There has been some debate over the years on just how effective NexWave is (although this does not seem to be impacting sales). However, other than that, it is hard to account for why the stock has such a large short position. That said, Zynex, Inc. does trade for north of 25 times forward earnings. Given just over 20% sales growth, that seems a reasonable valuation. If the shares dropped to ten bucks a share, I would probably establish an initial stake in Zynex, Inc. at that time.

I imagine one of the reasons people cling to their hates so stubbornly is because they sense, once hate is gone, they will be forced to deal with pain .”? James Baldwin.

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