Kestra Medical Technologies (NASDAQ:KMTS) is a medical device startup that went public in March of this year at an IPO price of $17 per share.
While shares initially rose coming off of the public offering and briefly broke the $25 market, the stock has lost over 35 percent of its value in the last three months to trade closer to $16.
Is Kestra Medical a buy now that it’s sold off to below its IPO price, or does the stock still look too risky to invest in today?
What Exactly Does Kestra Medical Do?
Kestra has created an innovative line of wearable devices for cardiac patients. The system, called ASSURE, is a combination wearable defibrillator and monitor that transmits cardiac data to both doctors and patients through a proprietary data platform.
These devices are designed to protect patients from sudden cardiac arrest events while also using data to help medical professionals monitor and adjust treatment plans.
By making that data available to patients, Kestra also hopes to increase patient engagement and compliance.
Kestra’s Revenues Up 82%
Although Kestra Medical Technologies has only been publicly traded since March, what little performance history the business has released since its IPO has been quite positive.
The results for fiscal Q3, released in April, detailed a year-over-year revenue growth rate of 82% to $15.1 million. Gross margin also exploded over that same time period, rising from just 10.6% to 43.4%.
Despite massive revenue and gross margin growth, though, Kestra’s net losses remained largely unchanged. In the year-ago quarter, the business lost $21.6 million. This year’s fiscal Q3 saw that loss widen very slightly to $21.8 million. Adjusted EBITDA loss, likewise, was virtually unchanged on a year-over-year basis.
Another issue Kestra Medical seems to have is a rather high debt load relative to the size of its business. As of fiscal Q3, Kestra reported net long-term debt of $43.7 million.
Although its reserve of cash and cash equivalents skyrocketed compared to the previous year due to its IPO, this is still a somewhat concerning level of baseline debt in light of the fact that Kestra is still losing a substantial amount of money each quarter.
With that said, revenue growth appears to be the standout feature of Kestra at the moment. Management’s guidance for FY2025 calls for a total of $58.0 to $58.5 million, implying year-over-year growth of 109 to 110%. If sustained, this revenue growth could help put the business on track for better bottom-line performance.
Kestra’s Addressable Market
One of the most important questions to answer about a young medical device maker like Kestra Medical is what its addressable market looks like.
The market for defibrillators overall is expected to grow at a CAGR of a little over 7% through 2030, eventually reaching about $20.8 billion.
While this might seem like a huge positive for Kestra off the bat, the growth of this market is largely expected to be led by implantable defibrillators instead of the wearable devices Kestra specializes in. As such, it’s possible that the segment of the market Kestra currently addresses could grow at a slower rate than the defibrillator market as a whole.
With that said, there are still some decent growth trends behind the kind of devices Kestra makes. Due to population aging and the ongoing high rates of cardiac disease in North America, demand for defibrillators of all sorts is apt to keep rising throughout this decade and likely well into the next.
Though North America is the leading market for defibrillator devices, other parts of the world will likely see rising demand in the years to come. As such, it seems safe to say that Kestra is operating in a growth industry, even if its devices may not target the fastest-growing segment within that industry.
Will Stryker Strike a Blow?
Chief among the worries for shareholders is market leader Stryker, a business valued at nearly $150 billion compared to Kestra’s market cap of less than $1 billion.
While Stryker makes many different kinds of medical devices to Kestra’s tight focus on defibrillators, the fact that Kestra must try to build market share against such a large and dominant competitor could be a problem for the startup.
Where Will Kestra Medical Stock Be in 1 Year?
5 analysts covering the stock remain quite optimistic and the consensus price target for KMTS is $27.50, a price that would result in a gain of over 70% from the current $15.91.
Yes KMTS share price is down slightly since IPO but it’s still trading at 16 times sales. That seems pretty high for a business with little track record as a public enterprise.
Kestra Medical Technologies does have several positive qualities as a business. It has managed to deliver an exceptional rate of revenue growth over the last year and is an innovative, up-and-coming business within an industry that is likely to see considerable growth over the coming 5-10 years. The mushrooming of gross margin over the last year is also markedly positive.
There are, however, a few problems that likely keep Kestra from being a buy right now. Despite no earnings and ongoing losses that haven’t improved alongside revenue and gross margin, KMTS still trades at a very high price-to-sales ratio that could leave it overvalued.
At the moment, KMTS is likely more of a hold than a buy. Those who already own the stock could benefit from ongoing revenue growth, while those who don’t may prefer to take a wait-and-see approach to see if future quarters make the stock’s valuation look a bit more reasonable. For the moment, though, the market seems to have priced Kestra Medical at a significant premium despite the lack of a near-term path to profitability and the other risks outlined above.
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.