Zynex (ZYXI) manufactures and markets FDA-approved electrotherapy units and associated provides for the therapy of power and acute ache and for muscle rehabilitation. There are a number of catalysts in play which have and are prone to proceed to propel the inventory share value greater.
The worldwide ache administration market is anticipated to develop at a CAGR of eight.four% over the following 5 years, in line with Forrester Analysis. Taglich Brothers analysis gives a variety of trade forecasts that positively favor ZYXI.
What was notably attention-grabbing and informative about their report was that Medicare ceased paying for the usage of electrotherapy for again ache in 2012, and subsequently, the whole electrotherapy sector was negatively impacted. I researched it and located that Medicare would pay just for these sufferers enrolled in a medical research of electrotherapy for again ache. The Taglich Brothers report indicated that demand for electrotherapy has accelerated and that the sector has recovered from that setback.
ZYXI withdrew from accepting Medicaid reimbursement a number of years in the past, and final month reactivated its Medicare supplier quantity to assist speed up gross sales.
Elimination of a serious competitor
ZYXI become a worthwhile firm in 2016, gaining market share from the elimination of its main competitor.
2014 $11.1 ($6.2) 2015 $11.6 ($2.9) 2016 $13.three $zero.07 2017 $23.four $7.four 2018 $31.9 $9.6
(Supply: 2018 10-Ok)
ZYXI was uplisted from OTC to Nasdaq in February. The uplisting makes the inventory extra engaging to institutional buyers, who at the moment personal lower than 1% of the float. Administration has been very energetic in collaborating in commerce exhibits such because the upcoming Spring Investor Summit.
It’ll take a number of quarters for institutional buyers to start out investing as they overview earnings to confirm that administration is on course with set expectations, corresponding to growing the nationwide footprint with progress of gross sales employees, progress in recurring income, and regular earnings progress with constructive money move
Advantages of electrotherapy over medication
Electrotherapy, versus medication used for ache administration, has no unwanted effects and is obtainable at a lot decrease price. One space the place the corporate is focusing its advertising marketing campaign is to handle the heroin epidemic. The Heart for Illness Management reported in 2016 that over 100 million Individuals expertise power ache. Whereas this quantity remained comparatively unchanged from prior years, prescription opioids have quadrupled. The American Bodily Therapist Affiliation put out a information for physicians on when to prescribe opioids versus bodily remedy.
Thomas Sandgaard, founder, CEO and President of ZYXI, acknowledges a chance for his firm, as he defined within the latest CC:
The opioid epidemic continues to be a critical concern on this nation. And we’re more and more working to get sufferers off opioids and for physicians to make use of our prescription-strength expertise as the primary line of protection when treating ache.
ZYXI’s aggressive benefit
The NexWave is used to chill out muscle spasms, to enhance blood circulation and for muscle rehabilitation by way of electrical currents. Its benefit over competing units is that it presents three modalities in a single gadget: Interferential Remedy, Transcutaneous Electrical Nerve Stimulation (or TENS), and Neuromuscular Electrical Stimulation (or NMES).
The lately launched NeuroMove for stroke sufferers has a built-in microprocessor “that may acknowledge low-level makes an attempt by muscle tissue to contract after which reward such detection with electrical stimulation.” (from the 2018 10-Ok)
Administration believes that there isn’t a different product available on the market that provides the identical expertise or functionality.
Click on right here for Different units supplied.
Elevated gross sales power
60 direct gross sales reps have been added in 2018 to the 100 legacy reps, which resulted in a 33% enhance in orders for 2018 over 2017. Income grew 39% to $31.9 million from $23.four. Machine income elevated 36% to $6.eight million, in comparison with $5 million the prior 12 months, whereas provide income elevated 36% to $25.1 over $18.four for a similar interval.
Rising gadget income results in elevated provide income, which offer regular, higher-margin, recurring income. Gross margins improved to 80% for 2018 as in comparison with 79% in 2017.
ZYXI additionally sells private-label provides and medical merchandise, along with the corporate’s personal merchandise by its rising gross sales channel.
FDA and European regulatory approval of Blood Quantity Monitor
ZYXI has a completely developed, patented blood quantity monitor that’s pending U.S. and European regulatory approval. That is the primary gadget that provides non-invasive detection of lack of blood and inside bleeding. Based on the investor presentation, blood monitoring is a $three billion trade worldwide.
It is good to see insiders have pores and skin within the sport. Mr. Sandgaard is personally invested in ZYXI, as he owns somewhat over 50% of the float.
The corporate paid out a particular one-time dividend of $zero.07 in January and accomplished its first share buyback program in March 2018, buying 495,091 shares for $2 million at a mean share value of $four.04.
Below a brand new $2 million buyback plan licensed in Might 2018, ZYXI has bought 524,129 shares for $1.7 million at a mean share value of $three.20. The share buybacks not solely supported the inventory value, but it surely has been very worthwhile for the corporate – a acquire of about $1.6 million on an funding of $three.7 million.
2018 Share Buyback Applications
# Shares Purchased @ Value
Whole Buy Value
495,091 @ $four.04/share $2 million
524,129 @ $three.20/share $1.7 million
Whole acquire $1.6 million
Favorable chart sample
The inventory value took off on expectations of uplisting and has been underneath consolidation, hovering above essential shifting averages which offer robust help, and is forming a base for one more run-up.
Knowledge by YCharts
The speed of damage as a result of defective medical units has been quickly rising within the U.S. ZYXI compares favorably to different medical gadget producers in that it’s extremely unlikely affected person can be injured by considered one of its units.
The corporate compares favorably with different medical gadget producers with a gross revenue margin of 80% and working margin of 32%, versus averages of 42% gross revenue margin and 1% working margin for the group, in line with knowledge from CSI.
The common price of products bought for the medical gadget trade is about 40% of complete income, whereas ZYXI prices got here in at a 71% of complete income as a result of growth of the gross sales power. It’s doubtless that the corporate will retain extra of its income this 12 months and prices can be extra in step with trade averages.
ZYXI at the moment doesn’t have publicity to tariffs or commerce wars, as all its suppliers, manufacturing and gross sales are home.
ZYXI has a barely greater earnings progress fee at 30%, as in comparison with the common fee of 26% for medical gadget firms. Making use of a P/E group common of 24 leads to a value goal barely above $eight/share, or 35% greater than its present value. There’s the potential of a 50% acquire or better, ought to regulatory approval for the blood monitoring gadget come by.
Revenues are nearly completely influenced by insurance coverage reimbursements. Adjustments in insurance coverage protection or well being plan legal guidelines might adversely have an effect on the corporate. Expertise is consistently altering, and there’s at all times the likelihood competing gadget can be higher acquired by the general public. It is a small-cap inventory and topic to extra volatility than a large-cap one.
ZYXI has undergone a outstanding comeback from struggling losses that solid doubt on its skill to outlive, remodeling right into a worthwhile firm with rising revenues. It is a high-margin, zero-debt machine which generated $9.four million in constructive working money flows throughout 2018, nearly doubling its working capital to $eight million on the finish of the 12 months in comparison with $four.four million Y/Y.
The corporate has scaled up its gross sales power and regularly provides new merchandise. Approval of the non-invasive coronary heart monitor has the potential to spike the inventory value greater. It is a progress inventory with kickers.
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Disclosure: I’m/we’re lengthy ZYXI. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from In search of Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.