Inogen (INGN) is a disruptive company in a very unlikely space.
Until the early 21st century, supplemental oxygen technology for people — oxygen therapy — had been unchanged for decades. People who needed oxygen therapy had to wheel around a tank of oxygen.
There are plenty of drawbacks: the volatility of pure oxygen, heavy tanks, and cumbersome hardware and hoses.
INGN set about to change that in 2001, and now it is the market leader in portable oxygen therapy units.
INGN Has the Market Cornered
Now, this may not sound like a big deal, but it’s already a $3 billion-$4 billion market, and INGN is the only player of its kind in the game at this point.
What’s more, the market is expected to grow 7%-10% per year until 2019. Further, better diagnostic technologies mean doctors are finding respiratory issues earlier than previously.
Chronic Obstructive Pulmonary Disease (COPD) diagnoses are also on the rise. Some studies suggest that 50% of COPD cases are currently undiagnosed.
Add to that the graying of baby boomers, who often have a more active lifestyle than earlier generations. The sheer numbers dictate that some will require oxygen therapy.
INGN already operates in 44 countries, so the international market is another key sector for the company. International sales comprise 24% of total sales, up from 21% last year.
INGN Is an Honest to Goodness Growth Stock
Its most recent Q2 numbers (released in early August) prove it. Total revenue was up 44.9% over the same period in 2014, sales revenue was up 58%, rental revenue of $11.6 million was up 17.3%, and net income grew 51%.
The company sells its units, and also rents them. While both segments are growing, INGN saw sales grow faster than rentals, which is a strong sign that patients are now opting to own a unit, rather than simply rent. Unit sales grew 78% over the same period in 2014, while rentals grew by 26%.
Since 2009, INGN has seen sales increase annually by almost 55%.
INGN’s unique system essentially concentrates the oxygen in the atmosphere, removing nitrogen to supply oxygen rich air without the need for tanks. It provides portable units that weigh as little as 5 pounds. It also provides stationary home units that are heavier, but still far less dangerous and cumbersome than traditional oxygen therapy units.
The company also has a strong patent portfolio on its proprietary design and delivery systems, which makes it difficult for competitors to enter the market. And right now, as it expands, many businesses choose to sell INGN’s products, rather than attempt to compete.
This is a compelling growth stock with a very good management team. It’s trading with a PE of 93, so it isn’t cheap. But, with a market cap of $830 million and a huge potential market, with a growing market share, it could easily maintain this growth for years to come.
Given its size, INGN could very well be a takeover target for a company such as Johnson & Johnson (JNJ), or another large medical device maker looking for a new revenue stream in a growth niche.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
