1 Under-the-Radar Stock Is Deeply Undervalued?

Studies have revealed a fourfold increase in the likelihood of heart attacks among people suffering from Peripheral Artery Disease (PAD). Reports also show a two to three times higher risk of death caused by strokes.

A study by P.G. Steg, published in JAMA, noted that 21% of individuals with PAD died due to heart attacks or strokes, which resulted in them being hospitalized for more than a year.

Semler Scientific, Inc. (NASDAQ:SMLR), a cardiovascular testing solution provider leads the charge in addressing the problem patients face but its stock has fallen by more than 37% decline over the past month, so is this a red flag or a solid buying opportunity?

Huge Market Size & Demand

According to a Heart Failure Society of America report, about 6.7 million Americans aged more than 20 years suffer heart failure.

By 2030, the prevalence is expected to increase to 8.5 million. Roughly 33% of U.S. adults are at risk of heart failure, and 24-34% of the U.S. population are at the pre-heart failure stage.    

Here comes into play SMLR’s flagship product, QuantaFlo. It is a patented and FDA-approved tool that measures arterial blood flow in the extremities. Given the massive prevalence of undiagnosed cardiovascular diseases, SMLR’s innovative tool has the potential to reach a broad audience where significant demand exists.

The bottom line is cardiovascular disease is a global healthcare concern that demands early detection, and SMLR is actively pursuing FDA clearance for QuantaFlo’s expanded use in broader cardiovascular diagnostics.

Top and Bottom Lines Growing Nicely

Semler Scientific’s revenue has grown at CAGRs of 20.9% and 26% over the past three and five years, respectively. The company’s EBITDA and net income have grown at CAGRs of 13.1% and 13.7%, respectively, over similar time periods.

For the fourth quarter of 2023, SMLR’s revenue grew by 9.1% year-over-year to $15.06 million, driven by persistent demand for QuantaFlo.

The company also saw 28% growth in its variable fees revenues, reaching $5.8 billion in the fourth quarter while net income increased by 31% year-over-year to $4.2 million, or $0.55 per share.

One concerning spike on the financials was Semler’s operating expense as a percentage of revenues, which increased to 83% from 74% a year ago. Overall, though, the company’s full-year 2023 marked continued revenue and net income growth.    

The growth can be attributed to the company’s existing customers, including hospitals, pharmaceuticals, and retailers, who continue to drive the company’s healthcare technology business forward. SMLR has also credited the robustness of its equipment revenues to its predominant sales strategy of targeting key customers.

Moreover, cash of $57.2 million, up from $23 million in the prior year, provides management with the broad flexibility and capacity to invest in growth opportunities and innovation.

Is Semler Scientific Beating Rivals?

SMLR has outshined its peers by showcasing impressive performance across various key indicators.

Its trailing-12-month gross profit margin of 89.76% suggests superior operational efficiency. Moreover, it stands out in the industry due to its impressive trailing-12-month return on equity (ROE) of 32.29%.

The cash flow statement further emphasizes the company’s operational efficiency. Net cash provided by operating activities for 2023 totaled $21.33 million, up from the previous year’s $17.46 million. This signals SMLR’s clear capability to generate healthy cash levels.

Semler Scientific’s Insider Activities Positive 

107 institutions own 51.86% of SMLR’s shares. The company is seeing significant interest from its institutional holders, as 24 institutions have taken new positions in the stock. Moreover, 57 existing investors have increased their holdings.

Over the past 12 months, insiders bought 78,680 shares of Semler Scientific, and Director Eric Semler purchased 77,771 shares in September 2023, which conveys high confidence in the company’s growth trajectory.

Is Semler Scientific Stock a Buy?

According to the single analyst who covers Semler Sicentific the stock remains a strong buy with upside to $65 per share. If correct, the upside opportunity is as high as 123.1% currently.

A discounted cash flow forecast analysis is not so rosy in its target price of $43 per share but still represents as much as 49.1% upside from present levels.

All through 2023, SMLR displayed solid financial performance, and management proudly announced impressive revenue and net income growth for the fourth quarter and fiscal year. Savvy cash reserve management and operational efficiency have also positioned the company favorably in a competitive medical devices industry.

Moreover, SMLR is reinvesting all profits into the business and steering away from dividend payments, significantly bolstering the company’s earnings expansion. Analysts expect the company’s revenue and EPS to grow by 10.7% and 25.8% to $75.5 million and $3.40 this year, respectively.

While the stock has seen a huge decline lately, perhaps because investors were concerned over the expiration of its patent in December 2027 and risky customer concentration, it looks very cheap at the current price level considering its financial affluence and growth prospects.

It trades at just 8.83x forward non-GAAP EPS, more than 55% cheaper than its industry peers and an over 70% discount to the 5-year average. Its forward price-to-sales of 2.79x represents a 27% discount to its sector average and more than 60% discount to the 5-year average.

Technically, it’s noteworthy that the share price is oversold presently too after the most recent correction. So with high gross margins, a low price-to-earnings ratio, significant upside potential based on a discounted cash flow forecast and analysts’ expectations, Semler Scientific appears to be a good stock to buy now, though patience may be needed before it realizes its full potential.

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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.