Vapotherm Inc. (VAPO) is a medical technology company that primarily focuses on developing and monetizing its Hi-VNI technology. It leverages its proprietary Precision Flow system via four different versions (Precision Flow Hi-VNI, Precision Flow Plus, Precision Flow Classic, and Precision Flow Heliox) to treat respiratory distress. Conditions it treats include pneumonia, COPD, heart failure, and asthma.
The main value for VAPO comes from the sale of its proprietary Precision Flow systems to hospitals, through which it has treated over 1.5 million patients so far. While the business initially floundered after going public in 2018, COVID-19 provided a clear tailwind as the company was able to leverage its technology to assist with the fight against COVID-19. (See Vapotherm stock charts on TipRanks)
Given that COVID-19 hospitalizations are declining sharply, VAPO is investing aggressively in customer education efforts in order to raise awareness of, and consequently demand for, its systems. Overall, the company is likely to experience a sharp decline in earnings this year, as the tailwind from COVID-19 will continue to decline and its customer education efforts will take time to bear fruit.
Despite this headwind, VAPO still possesses a strong position in the space thanks to its proprietary technology. Given that it is applied to a diversified collection of systems, the technology can be used to treat patients of all ages and a wide range of ailments. As a result, the business is likely to return to growth no later than 2023. Once the negative comparable quarters with COVID-19 impacts have fully flushed through the system, and its customer education efforts begin to take effect, the company can shrug off the current headwinds.
VAPO looks quite expensive right now, given that it is bleeding cash and is running up significant losses. Furthermore, its forward EV/Revenue multiple of 4x is not cheap either.
Wall Street’s Take
From Wall Street analysts, VAPO earns a Strong Buy analyst consensus based on 4 Buy ratings in the past 3 months. Additionally, the average analyst Vapotherm price target of $39.00 puts the upside potential at 65.5%.
Summary and Conclusions
VAPO enjoys a lot of momentum right now thanks to COVID-19 tailwinds. The tailwinds enabled the company to grow revenue by a whopping 161.4% in 2020 while also expanding its business network and brand familiarity among their target customers.
That said, the path forward is anything but certain, as the dissipating COVID-19 tailwind will likely lead to a sharp decline in revenue this year. Additionally, management is having to invest heavily in customer education efforts to try to expand awareness, and ultimately demand, for its systems in the post-COVID world.
The good news is that there will likely be long-lasting positive impacts for VAPO from COVID-19 and that the company does have some promising opportunities to return to sustainable growth after this year’s normalization of demand.
Additionally, the stock is down by more than 50% from its 52-week highs, making the valuation much more palatable than it was 10-11 months ago.
For those reasons, the unanimous Strong Buy rating assigned to the shares from analysts makes sense. At the same time, however, the company remains unprofitable and will unlikely become profitable anytime soon. As a result, investors might want to be cautious about investing here for the time being.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.