Electromed, Inc. is a medical device company that manufactures and markets airway clearance technologies to help people around the world breathe better and stay healthier. Electromed markets the SmartVest® Airway Clearance System which has been clinically proven too reduce bronchiectasis-related exacerbations leading to decreased hospitalizations, antibiotic use, and emergency room visits. SmartVest works by way of High Frequency Chest Wall Oscillation (“HFCWO”) system that helps patients clear mucus from the lungs.
ELMD stock has a market cap just around $100MM at the time of this writing. We believe this company is overlooked by most retail and institutional investors due to its small size and lack of coverage leading to a discounted valuation. This company has a strong financial position and growth prospects.
Valuation and Growth
ELMD is good value based on a P/E ratio of (29.9x) compared to the US Health Care Equipment and Supplies industry average (50.6x). The market is pricing this stock as a low growth company, but analysts think otherwise with forecasted annual earnings growth of 35.7% compared to the industries 16.5%, as well as an average price target of $18 per share. Implying a 58% increase over current share price. Estimated Bronchiectasis Prevalence in U.S. Population is 4.2 Million. Currently only around 77,000 patients utilize a High Frequency Chest Wall Oscillation (“HFCWO”) system like SmartVest. Lastly macroeconomic factors bode well for this company with an aging U.S population and exploding popularity of home care solutions.
ELMD has no debt currently with cash and cash equivalents totaling $12.5MM. ELMD generates free cash flow and reinvests capital at above average rates of return with a ROC of nearly 14% last year. They have continually increased revenue as well.
There are two big risk we’ve identified with this company. They are a bit of a one trick pony with that vast majority of revenue coming from one product line. We would like to see a broader range of products in their offerings. Also inherently like with any small cap company a lack of coverage can negatively effect share prices.
Investing is all about risk and reward. The ELMD Stock is still flying under the radar of most. Overall this company is trending in the right direction with strong financials and a proven product. To better understand what makes a great small cap stock click HERE where we go into detailed analysis methods.
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