Is iRhythm Technologies Stock A Buy?

iRhythm Technologies Inc (NASDAQ:IRTC) is a digital healthcare company whose Zio range of heart monitor sensors is changing cardiac arrhythmia diagnosis. The company makes a range of EKGs and biosensors and has several lucrative contracts.

But its stock plunged when Novitas announced its Medicare plans won’t cover it. Patients may need to buy these medical wearables out of pocket, which raises doubts – is iRhythm Technologies stock a Buy?

The current dip could represent a discount opportunity for value buyers; insurance reimbursement problems could be overblown. It passed through the Federal Drug Administration (FDA) in 2011, which is a crucial hurdle for any healthcare technology.

Wearables flooded the FDA through the 2010s, as everyone from Fitbit to Apple tried getting FDA approval for their fitness trackers. It will likely be a key part of the future of healthcare, with doctors able to diagnose you based on more firm data than what’s obtained in office.

But that future is slow moving, and it may not matter if your insurance provider won’t pay for any of it. Out-of-pocket healthcare expenses are out of control in the U.S., increasing 2.2 percent in 2018 and 6.2 percent in 2019. That was before the virus outbreak.

Let’s check iRhythm Technologies’ vital stats to see if it can provide a healthy return for investors.

iRhythm Technologies 101

iRhythm Technologies is a digital healthcare company that focuses on heart monitoring technology. Specifically, its Zio device is a complete ambulatory cardiac monitoring solution used on over 2 million patients so far.

The heart monitor is a single-use product that’s prescribed by a physician, worn up to 14 days, and mailed back to Zio.  The company then provides the physician with an actionable heart health report that goes above and beyond what can be done in a short office visit.

Zio is FDA-approved and connects to a cloud-based data platform to help monitor and diagnose arrhythmias. It replaces the traditional Holter monitor, which is a much larger ECG device that’s typically used for 24-48 hours.

IRTC revenue streams are divided into specific categories – 41 percent comes from federal government agencies under reimbursement codes, with 38 percent coming from clinics and hospitals. The rest is from private payers and private insurance companies.

This means its billing codes are important, and the temporary Current Procedural Terminology (CPT) codes it wants to replace are coming. Now they will cover the devices for periods between 48 hours and seven days and another for between seven and 15 days.

These are the changes that ultimately got the company in hot water with a major insurer. And that has investors wondering if the lowered price is a discounted buying opportunity.

Is iRhythm Technologies Stock A Buy?

At the start of the year, iRhythm Technologies had a market capitalization of around $6.5 billion.

IRTC share price plummeted to a 52-week low of $56.54 in Q1 2020, but it quickly recovered to former high levels. By August 2020, the company’s shares were trading at over $200 per share.

That trend continued until several price crashes in December and February based on the billing code and Medicare-related news.

The company, so far, is not profitable, and quarterly revenues of $71.9 million in the third quarter of 2020 led to a $4.7 million net loss. Still, it’s an increase of 32 percent from the prior year.

Management is working to create a digital platform that makes cardiac monitoring easier than ever, and that could be a major boon for healthcare.

And the company’s so far only operating within the United States – expanding globally is a big play to potentially increase revenue streams. CEO Kevin King explained the pandemic slowed growth, but it’s still working hard to continue moving forward and up.

It headed into the 2020 holiday season with $365.9 million in cash and equivalents, compared to $162.66 million in debt. That’s a healthy balance sheet, but the debt is higher than it was in 2019 and investors should be wary of the risks of investing.

iRhythm Technologies Faces Insurance Battles

The risks of investing in iRhythm Technologies were highlighted through the winter of 2020/2021. Even though it has FDA approval, it’s battling with insurers for coverage. Medicare is a major provider, and the company needs every big carrier it can get.

Changing these billing codes is no small feat, and while it’s making progress, the path is slow.

Investors jumping on now will have to wait for this battle to play out. And once it gets stabilized in the U.S., the company has to expand internationally. These are the keys to overcoming the competition and growing its market share.

But rivals won’t give up that market easily.

iRhythm Technologies Has Numerous Rivals

Some competitors to iRhythm Technologies include BioTelemetry and Spacelabs Healthcare. Each has a mobile-connected ECG monitor, although they leverage different ways to get there. The biggest differentiator will be the software, as the sensors aren’t proprietary.

Fitness wearables do their best to detect human vitals, but so far, they aren’t a legitimate medically prescribed alternative.

The competition in the industry is stiff, and it’s too early to tell which company will ultimately be successful. Current billing code setbacks affecting iRhythm will affect the others, and that means it’s still anyone’s game.

Whether the company can overcome the obstacles and outpace competitors remains to be seen.

Is iRhythm Technologies Stock A Buy? Conclusion

Digital health is quickly evolving, and iRhythm Technologies is at the forefront of mobile cardiac monitoring.

The traditional method only covers up to 48 hours and can’t be worn in certain situations, like while in the shower. But iRhythm’s Zio is a 14-day monitoring solution that can survive your morning shower.

Still, it’s fighting with Medicare providers over billing codes to cover it. FDA approval isn’t enough to get it widespread into the market, and investors have a long battle ahead. If you choose to buy into this company, be prepared to hang on for a long, turbulent ride.

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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.