Is Axonics Stock Overvalued?

Among the largest trends in medical technology now are artificial intelligence, machine learning, the Internet of things and connected devices, robotics, 3D printing, augmented and virtual reality, nanotechnology, automation in manufacturing, and blockchain.

These technologies are designed to improve patient outcomes and make medical tasks easier. Innovations such as AI-assisted examinations, AI tools for diagnosis and predictions, printed body parts, robotic surgeries, and blockchain-secured health records are increasing what is possible in medicine.

As the lines between traditional medical devices, digital health tech, and biotech blur, Axonics (NASDAQ: AXNX) is making its mark. It is a medical technology firm that creates and sells new products to help with bladder and bowel issues.

The company’s sacral neuromodulation systems help people with an overactive bladder. Axonics’ stock has increased by more than 29% over the past year so will the bullish momentum continue and if so, what will the growth driver be?

What Will Drive Axonics Stock Higher?

In May, Axonics received approval from the Therapeutic Goods Administration to sell its Axonics F15™ system in Australia. This device does not need recharging and is used for sacral neuromodulation (SNM). It helps adults with overactive bladders and promises big health improvements.

This important regulatory step may help Axonics break into additional markets and reveals the company’s ambitions to growing worldwide.

Entering the Australian market with its product, Axonics F15™, translates to broader distribution and higher revenues, a move that will likely increase earnings and establish a stronger presence in the region.

In March, Axonics achieved another milestone with the CE Mark approval for its Axonics R20™ rechargeable SNM system. This device can work in the body for at least 20 years, so patients do not need to recharge it often. They need to do so only every 6 to 10 months for just one hour, which makes it more convenient and easier for them to follow.

The CE Mark approval for the Axonics R20™ is a big step forward in SNM systems technology, placing Axonics as a leader in the neuromodulation field. Most importantly, it’s a development that should improve how patients feel while placing Axonics in a stronger position to compete in Europe and other key geographies.

In a move that signals just how far the company has come, shareholders agreed to a merger deal with Boston Scientific Corporation (NYSE:BSX). It’s a bit of surprise why when the financials are considered as you’ll see.

Mixed Financials Lead to Flat Share Price

In the quarter that ended on March 31, 2024, the company’s net revenue rose by 29.4% compared to last year’s period, reaching $91.41 million. Gross profit also grew by 31.9% year-over-year, amounting to $69.25 million.

In the same quarter, management reported an adjusted EBITDA of $2.97 million, a big leap of 220.6% versus the year prior.

Nevertheless, the company’s net loss and net loss per share increased by 106.7% and 100%, respectively, over the year before and came in at $19.11 million and $0.38 for each share, respectively.

These mixed results reveal that while Axonics is experiencing significant revenue growth, it is coming at the cost of the bottom line.

Is Axonics Stock Overvalued?

Axonics stock is overvalued by 20.1% according to a discounted cash flow forecast analysis that pegs fair value at $54.36 per share. As you’ll see though not all analysts are on board with that assessment.

Looking under the hood, Axonics trailing-12-month gross profit margin is 75.25%. In addition, the stock’s trailing-12-month asset turnover ratio is 0.56x, which is higher than the sector average of 0.40x by about 38.8%.

The company’s trailing-12-month EBITDA margin is just 1.39%, which sits well below the industry average of 6.13%. 

These numbers show that Axonics is good at making a profit on the products it sells and using its assets well. But, its low EBITDA margin and its spending less on capital than on sales suggest either problems with how the company is run or insufficient spending for future growth.

What Is the Investment Outlook for Axonics?

For the fiscal second quarter that ended in June 2024, the company’s revenue is expected to increase by 21.4% to $112.73 million compared to last year. Also, earnings per share could reach $0.08. Notably, Axonics has surpassed consensus revenue estimates for the past four quarters.

In the third quarter of 2024, the company’s revenue may grow 22.2% from last year to $113.73 million. During this time, EPS may also increase by 10.9% to $0.09 compared to last year’s period.

However, Axonics now has a high valuation. Looking at forward EV/Sales, it is trading at 7.06x, almost 2x the industry average.

Its forward EV/EBITDA of 340.69x is also sky high relative to peers and the forward price-to-sales ratio stands at 7.73x, also around 2x higher than rivals.

Axonics’ profits, recent financial numbers, and high price tag mean it may be smart to wait for a good time to invest. 

Analysts seem to be more optimistic with a price target of $71.89 per share as the consensus among 9 analysts, though even that puts the upside opportunity for new investors at a relatively limited 4%.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.