Zynex Stock Forecast

Zynex Stock Forecast: Medication isn’t the only way to treat muscular pain.

In light of concerns about widespread opioid misuse, patients and physicians are enthusiastic about trying alternative therapies.

Electrotherapy, in particular, has grown in popularity as a non-drug treatment for muscle spasms, chronic and acute pain, and improved blood circulation around healing bones and tissues.

What Is Electrotherapy & Where Does Zynex Fit In?

Essentially, electrotherapy equipment works by delivering low, painless pulses of energy through electrode patches placed on the skin over the affected area. Depending on the condition being treated, the pulses may stimulate the muscles to contract. Once the pulse stops, muscles relax.

When electrotherapy is used for treatment of pain, it delivers pulses of energy to the nerves, suppressing pain signals. In some cases, this treatment method also encourages the body to produce more of its natural pain-killing chemicals, endorphins.

Electrotherapy is used worldwide by practitioners treating pain, conducting physical therapy, and supporting recovery from trauma to muscles and bones.

Though clinical studies have produced mixed results, anecdotal evidence that this method works is compelling. Many patients report that they heal faster and are better able to manage their pain without the use of dangerous pain medications.

Better still, electrotherapy devices are now available for home use, reducing the need to spend long hours in a doctor’s office.

Zynex is leading the industry in producing electrotherapy devices for home use, and sales have increased dramatically over the past year. Investors who bought in before the recent rise in stock prices have nearly doubled their money. New investors want to know, is there still room for Zynex to grow? In other words, is Zynex a buy?

What Does Zynex Do?

Zynex was founded in 1996 by Danish native Thomas Sandgaard. He had worked with electrotherapy devices in Denmark, and he saw an opportunity to bring this technology to the United States. In true American-dream style, Sandgaard launched his company from his Colorado apartment, and by 1998, he received his first FDA approval.

The company held its IPO in 2004, and by 2010, it had a lengthy list of FDA-approved equipment for non-drug treatment of pain and stimulation of circulation to promote healing.

That year, the company was divided into three branches – the original Zynex Medical, Zynex Monitoring Solutions, and Zynex NeuroDiagnostics. These operate as subsidiaries of parent company Zynex.

Zynex Medical is the company selling popular at-home electrotherapy devices, and for now, it is the only branch that is generating any notable amount of revenue.

Zynex Monitoring Solutions is working on a line of cardiac monitoring devices for hospital use, and Zynex NeuroDiagnostics has new EMG and EEG devices in development. When these devices come to market, they will offer advanced diagnostic solutions for neurologists.

What are the Risks of Buying Zynex Stock?

Analysts have pointed out two important issues for investors to consider before buying Zynex stock.

First, much of the evidence that electrotherapy works is, as mentioned, anecdotal. Some studies show minor benefits from electrotherapy in blind evaluations against sham devices, but most researchers could find no data to support the use of this treatment method.

That may not matter to patients who swear by their electrotherapy equipment, but it does matter to the insurers who are paying for the devices. Some medical plans have already dropped coverage for home electrotherapy equipment, and others are considering changes.

One of the most notable in the second category is the Centers for Medicare and Medicaid Services. A decision to remove electrotherapy devices from coverage for Medicare and Medicaid patients would have a dramatic effect on Zynex sales.

The second issue is a relatively new development and specific to Zynex, rather than electrotherapy in general. A few analysts have studied Zynex’s pricing model, and they have formed an opinion that the model is not sustainable. Basically, in trying to understand how Zynex sets prices for the electrotherapy devices it sells, they concluded that the products are significantly overpriced.

The analysts indicated that Zynex resells standard consumer batteries and electrodes with a markup of around 90 percent. If the margin is reduced by even a little bit, Zynex’s profits would be completely erased. In fact, the company would be operating in the red. If these reports are accurate, Zynex’s recent gains are precarious at best.

With that in mind, does it make sense to buy Zynex stock?

Is Zynex a Buy?

The numbers reported for third quarter 2019 are exciting, and Zynex has a variety of new products in its pipeline.

Revenues came in at $11.8 million, representing a year-over-year increase of 45 percent, and orders went up by 95 percent year-over-year. Zynex achieved total net income of $2 million, and adjusted earnings per share came out to $0.06.

The third quarter of 2019 marks the thirteenth consecutive quarter of profits, and business leaders project another win in the fourth quarter. Revenues are expected to be between $12.3 million and $12.8 million, which would be a 32 percent to 37 percent increase year-over-year as compared to fourth quarter 2018’s $9.3 million.

If those figures are accurate, investors can consider Zynex a smart buy. However, based on the risks identified for Zynex’s future sales, it may be unwise to rely on fourth quarter guidance from the business.

Zynex Stock Forecast Summary

It’s true that Zynex is selling a line of products that are immensely popular among patients. However, the effectiveness of these products hasn’t been clinically proven unequivocally. That means insurers may lose interest in providing coverage for their purchase.

More importantly, further investigation into the company’s pricing structure could permanently disrupt what is currently a strong business model. If forced to make changes, Zynex may not financially recover.

While it is true that neither of these issues may ever turn into more than industry chatter, investors would be better off avoiding this stock until more information is available. There are other candidates that offer similar rewards at a lower level of risk.

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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.