Penumbra (NYSE:PEN), a medical device manufacturer that specializes in thrombectomy and embolization equipment, has enjoyed a good year. PEN shares have risen by more than 33 percent.
So, is Penumbra stock a buy now for future growth, or has the stock already run as high as it’s likely to for the time being?
Penumbra’s $2.8 Billion Market Opportunity
Penumbra’s large presence in the thrombectomy device market could prove to be its largest asset, as that market is expected to grow at a CAGR of over 7 percent through much of the next decade. By 2032, the thrombectomy device market globally is projected to be worth about $2.8 billion.
It’s also worth taking into account Penumbra’s potential for international expansion. As of its recent Q2 earnings report, 76.8 percent of Penumbra’s revenues came from the United States. While US revenue is growing at a significantly faster pace than international revenue, Penumbra could have a long-term growth runway internationally.
Developing markets are seeing increasing rates of cardiovascular diseases associated with sedentary lifestyles, a trend that is likely to put upward pressure on demand for thrombectomy devices globally for years to come. With its already strong market position, Penumbra could be a prime beneficiary.
Strong Balance Sheet Supports Shareholders
Penumbra has proven remarkably consistent when it comes to producing revenue growth, with 20 consecutive quarters of upward momentum currently under its belt. Indeed, Penumbra has only reported a single quarter in which revenue declined on a year-over-year basis in its public history. As of the time of this writing, Penumbra’s trailing 12-month revenues totaled $1.28 billion.
While earnings haven’t been as consistent as revenue, they have also trended generally upward over time. As of the end of Q2, Penumbra’s trailing 12-month EPS reached a record high of $3.78 per share. Over the same time period, the business has generated a respectable 12.5 percent return on equity.
These positive trends held strong in Q2 when management reported yoy revenue hike of 13.4% to $339.5 million. US thrombectomy sales climbed at a significantly steeper rate of 22.6%. Turning to the bottom line, the net income for the quarter totaled $45.3 million compared to a loss of $60.2 million in the year-ago quarter.
Better still, management boosted full-year 2025 revenue guidance to a range of $1.36 billion to $1.37 billion which will translate to year-over-year revenue growth this year of between 13 and 15%.
A final positive for shareholders can be found in Penumbra’s balance sheet, which is quite strong. The business has a reserve of cash and cash equivalents totaling $421.8 million compared to total liabilities of $380.8 million. With Penumbra in a very strong financial position and both its revenues and earnings growing, PEN has many of the hallmarks of a stock that could appreciate steadily over time.
Unpacking Penumbra’s Premium Valuation
At 67.3 times earnings, 7.7 times sales, 61.3 times operating cash flow and 7.6 times book value, it’s clear that the market is pricing a high growth premium into Penumbra shares. This premium could, however, prove to be justified by the earnings growth Penumbra could see over the coming several years.
The forecast for earnings are to CAGR at about 30 percent on an annualized basis over the next 3-5 years. Beginning with the 12-month earnings of $3.78 as a starting point, Penumbra is priced at only about 18x expected 5-yr earnings.
This high level of expected growth may also go some way toward explaining why analysts remain quite bullish on Penumbra. PEN’s average 12-month price forecast is $310.88, nearly 23 percent higher than its last trading price. PEN also enjoys a strong buy consensus with 12 buy ratings, 4 hold ratings and no sell ratings.
This optimism among analysts hasn’t translated to the activity of institutional investors and over the last six months, large investors have sold $22.8 billion worth of PEN while buying only $11.5 billion.
Is Penumbra Stock a Buy Now?
Given its high valuation, PEN is priced at a level that leaves management comparatively little room for missteps. Even if the business performs positively but misses expectations, the current price could leave Penumbra set up for a potential selloff.
Despite its niche focus, Penumbra is also still a fairly small player in the medical devices space compared to the large, dominant businesses that lead the industry.
For those willing to accept the risk of a fairly steep valuation, though, there’s a decent amount to like about Penumbra. The business looks attractive in terms of market opportunity, current performance and financial standing, all of which could help to justify the premium price tag that its shares currently command. Furthermore, the coming several years are expected to see EPS rise at a rate that could make Penumbra shares worth their current valuation metrics.
Right now, PEN is likely a bit of a high-risk, high-reward investment. With that said, the fact that the business has already become profitable and established itself commercially in a growing market puts it ahead of many more speculative stocks in the medical space.
As such, Penumbra may occupy something of a middle ground as a high-growth medical device stock that isn’t dependent on unproven commercial viability. For investors willing to accept an elevated level of risk in exchange for what could be outsized returns if earnings track upward as expected, PEN could be worth looking at as a buy-and-hold stock.
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.