Senseonics (NYSEAMERICAN:SENS) is an $808 million market cap medical device company that is waiting for Food and Drug Administration (FDA) approval. Until that happens, SENS stock looks like a bargain.
Senseonics is seeking approval for its latest implantable continuous glucose monitoring (CGM) product called the Eversense XL. The company has said it might take until the fall. The market can’t or won’t wait. SENS stock has been drifting down. Take advantage of this weakness to build your position.
Comparison With DexCom
I wrote about these developments last month in my article, “Senseonics Will Likely Rise On the Same Trajectory as DexCom.”
Since then, SENS stock has slid from $2.34 to $1.89, down 17.2%. Daunting as this may seem, this allows long-term investors to take advantage.
My thesis is that SENS stock will take the same trajectory that DexCom (NASDAQ:DXCM) has taken. It is a similar CGM company, albeit with $2.34 billion in sales. It has a cloud-based monitoring product that excludes the need for lancers that prick the skin to test blood sugar levels.
DexCom has a $34.7 billion market capitalization and trades for 14.8 times sales and 158 times earnings for 2021. Over the last 10 years, DXCM stock has risen over 21 times in the past 10 years. This includes a gain of 4.4 times in the last 5 years.
My thesis is that SENS stock will recover once the FDA allows Senseonics to start selling its device in the U.S. Analysts will be able to project out revenue and earnings, along the same lines that they do for DXCM stock.
Investing in SENS stock requires a long-term view, perhaps as long as 5 years for a long-term, patient value investor.
However, even if takes 5 years and the stock rises 10 times over that period, the average annual return will be 58.5% each year on a compound basis. That is a great ROI for most investors. But you can see that this requires patience and a long-term view.
It also requires the investor to average cost down as SENS stock falls.
Where This Leaves SENS Stock
Analysts that cover the stock tend to agree with my optimism. For example, TipRanks says that 5 analysts already cover SENS stock, offering 12-month targets on it in the last 3 months. Their average target price is $3.17. This represents a potential gain of 74% over today’s price.
Yahoo! Finance reports that 4 analysts have an average target price of $2.30. That’s 26% above today’s price. However, Marketbeat indicates that 6 analysts have an average target of $1.69, or 7% below today’s price.
So the range of analyst target prices is from $1.69 to $3.17. The midpoint of these analyst aggregation sites’ target price is $2.39. This represents a potential gain of 31% for investors at today’s price.
Sales Forecasts Justify the High Valuation
One analyst on Seeking Alpha calls Senseonics “one of the most compelling growth stories in the market.” He calls SENS stock a “potential multi-bagger.” He argues that the market is giving investors a “second chance” to buy into SENS stock.
He believes that Senseonics will disrupt the CGM market through its partnership with Swiss-based Ascensia Diabetes Care. Ascensia has 10 million customers in over 125 countries. The 2020 partnership with Ascensia has led to financing assistance and the prospect of spending $250 million on behalf of Senseonics over the next several years.
But everyone is waiting on the FDA to act. During the March 4 conference call with analysts, the CEO said that the FDA was going to start reviewing their application by April 15. He also said that he expects approval by the third or fourth quarter.
This is the basis for analysts’ expectations of $12.9 billion in sales this year (up from $5 billion last year). Moreover, in 2022 they forecast $32.9 billion. That represents a 155% rise in sales year over year. It also puts SENS stock on a forward price-to-sales (P/S) multiple of 24.6 times. But this is if sales keep doubling.
Bottom line: take advantage of this lull in SENS stock by averaging down.
On the date of publication, Mark R. Hake did not hold a position in any security mentioned in this article.