During the Senseonics Holdings (NYSEAMERICAN:SENS) Q2 conference call on Aug. 9, CEO Tim Goodnow updated investors on the U.S. Food and Drug Administration approval process for its Eversense product. Eversense is designed to be a continuous glucose monitoring (CGM) device for diabetes patients. Once the FDA approval comes in for its 180-day version of Eversense, Senseonics can market it extensively in the U.S. That should provide a huge boost to SENS stock.
This could not come at a better time for the stock price. It has been on a downward drift since it closed on Feb. 16 at $5.27 per share. As of the close of Oct. 15, SENS stock was down to $3.30, or a drop of over 37%.
In mid-June and then again at the end of August, the stock rose over $4 per share. It’s almost as if the stock is waiting to hear from the FDA before it will move higher.
Where Things Stand With the FDA
CEO Tim Goodnow indicated that they are working closely with the FDA in the approval process. He indicated that the product was assigned to a lead reviewer in the FDA on April 15.
Since then, the company has been in discussions with the lead reviewer. Mr. Goodnow indicated how he feels:
“We continue to expect the approval of the product by the end of 2021. Though the constantly evolving situation with the pandemic and its impact on FDA workload, make it hard to precisely estimate regulatory timelines.”
Moreover, Senseonics has a global marketing partner. Ascensia Diabetes Care was signed up in Aug. 2020 as its exclusive worldwide strategic partner to distribute its Eversense CGM.
Ascensia is now marketing Eversense in Europe, which is how Senseonics is already starting to produce most of its revenue. Ascensia is a Swiss-based private company that also has its own blood glucose monitoring (BGM) Contour products. Ascensia will begin marketing the 180-day version of Eversense in the U.S., once the FDA approval comes through.
Where This Leaves Senseonics Stock
I have written that SENS stock could follow the same trajectory that DexCom (NASDAQ:DXCM) has taken. It is a similar CGM company, albeit with an estimated $2.4 billion in sales for 2021. DexCom has a cloud-based monitoring product that excludes the need for lancers to prick the skin for blood sugar tests.
DexCom has a $52.68 billion market capitalization and trades for 22 times sales and 219 times earnings for 2021. Over the last 10 years, DXCM stock has risen 37.5 times. This includes a gain of 5.75 times in the last 5 years.
The idea is that SENS stock could take a similar trajectory once its 180-day CGM Eversense device comes through with FDA approval. It could easily begin a multi-year trajectory just like DXCM stock has had in the last five years.
What SENS Stock Is Worth
For example, right now SENS is forecast to reach $32.7 million in sales by the end of 2022. This is up 134% from forecast sales for 2021 of $14 million. And that is up from 2020 sales of $4.95 million. But given that sales are forecast to reach $238 million by 2026 in five years, this implies a much higher stock price.
First, we have to bring back those future sales and reduce them to their present value. Using a 10% discount rate over five years the discount factor works out to 62.1% (1 / (1.1^5)). That puts the present value at 147.8 million.
Then using DexCom’s price-to-sales-(P/S) multiple of 22 times gives Senseonics a potential market value of $3.252 billion. That is 121% over today’s market value of $1.469 billion for Senseonics, according to Yahoo! Finance.
What to Do With SENS Stock
TipRanks says that 5 analysts have an average target price of $4.13. This represents a potential gain of 25% over today’s price. Moreover, Seeking Alpha has a survey of 8 analysts that cover the stock and they have an average price of $3.46, or 4.8% higher than today.
The problem I have with these price targets is that they have risen as the stock has gone up. Analysts don’t want to be seen as not recommending the stock.
But they don’t seem to have a long-term target or valuation for Senseonics stock. That is why I like my target price better. Investors who believe that Senseonics could follow DexCom’s trajectory might want to take a look now at SENS stock.
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On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
