Vapotherm Could Provide a Breath of Fresh Air to Investors

Vapotherm Inc. (VAPO) is a medical technology company that primarily focuses on developing and monetizing its Hi-VNI technology. It leverages its proprietary Precision Flow system via four different versions (Precision Read More... The post Vapotherm Could Provide a Breath of Fresh Air to Investors appeared first on TipRanks Financial Blog.

Vapotherm Could Provide a Breath of Fresh Air to Investors

Vapotherm Inc. (VAPO) is a medical technology company that primarily focuses on developing and monetizing its Hi-VNI technology. It leverages its proprietary Precision Flow system via four different versions (Precision Flow Hi-VNI, Precision Flow Plus, Precision Flow Classic, and Precision Flow Heliox) to treat respiratory distress. Conditions it treats include pneumonia, COPD, heart failure, and asthma.

The main value for VAPO comes from the sale of its proprietary Precision Flow systems to hospitals, through which it has treated over 1.5 million patients so far. While the business initially floundered after going public in 2018, COVID-19 provided a clear tailwind as the company was able to leverage its technology to assist with the fight against COVID-19. (See Vapotherm stock charts on TipRanks)

Given that COVID-19 hospitalizations are declining sharply, VAPO is investing aggressively in customer education efforts in order to raise awareness of, and consequently demand for, its systems. Overall, the company is likely to experience a sharp decline in earnings this year, as the tailwind from COVID-19 will continue to decline and its customer education efforts will take time to bear fruit.

Despite this headwind, VAPO still possesses a strong position in the space thanks to its proprietary technology. Given that it is applied to a diversified collection of systems, the technology can be used to treat patients of all ages and a wide range of ailments. As a result, the business is likely to return to growth no later than 2023. Once the negative comparable quarters with COVID-19 impacts have fully flushed through the system, and its customer education efforts begin to take effect, the company can shrug off the current headwinds.

Valuation Metrics

VAPO looks quite expensive right now, given that it is bleeding cash and is running up significant losses. Furthermore, its forward EV/Revenue multiple of 4x is not cheap either.

Wall Street’s Take

From Wall Street analysts, VAPO earns a Strong Buy analyst consensus based on 4 Buy ratings in the past 3 months. Additionally, the average analyst Vapotherm price target of $39.00 puts the upside potential at 65.5%.

Summary and Conclusions

VAPO enjoys a lot of momentum right now thanks to COVID-19 tailwinds. The tailwinds enabled the company to grow revenue by a whopping 161.4% in 2020 while also expanding its business network and brand familiarity among their target customers.

That said, the path forward is anything but certain, as the dissipating COVID-19 tailwind will likely lead to a sharp decline in revenue this year. Additionally, management is having to invest heavily in customer education efforts to try to expand awareness, and ultimately demand, for its systems in the post-COVID world.

The good news is that there will likely be long-lasting positive impacts for VAPO from COVID-19 and that the company does have some promising opportunities to return to sustainable growth after this year’s normalization of demand.

Additionally, the stock is down by more than 50% from its 52-week highs, making the valuation much more palatable than it was 10-11 months ago.

For those reasons, the unanimous Strong Buy rating assigned to the shares from analysts makes sense. At the same time, however, the company remains unprofitable and will unlikely become profitable anytime soon. As a result, investors might want to be cautious about investing here for the time being.

Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

The post Vapotherm Could Provide a Breath of Fresh Air to Investors appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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NIO: Great Business, But Valuation Is Sky-High

NIO Inc. (NIO) designs and manufactures high-tech electric vehicles in China. As a major player and innovator in connectivity, autonomous driving, and artificial intelligence technologies, it competes directly with Tesla Read More... The post NIO: Great Business, But Valuation Is Sky-High appeared first on TipRanks Financial Blog.

NIO: Great Business, But Valuation Is Sky-High

NIO Inc. (NIO) designs and manufactures high-tech electric vehicles in China. As a major player and innovator in connectivity, autonomous driving, and artificial intelligence technologies, it competes directly with Tesla (TSLA).

The main value for NIO comes from its competitive positioning in the luxury electric vehicle market (especially SUVs) in China, stemming from its comparable technology combined with its cheaper price point.

Furthermore, as a leading local manufacturer and innovator in high-priority cutting edge technology fields, the Chinese government has a vested interest in NIO’s continued growth and success. This should not only lead to continued financial support through difficult times, but may also lead to the government-controlled media stirring up popular opinion against its main competitors, as it has done with TSLA recently. (See Nio stock chart on TipRanks)

The company is expected to continue generating strong growth on the back of the re-opening of the global economy following the COVID-19 outbreak, as well as the continued robust growth of the Chinese middle class. Moreover, as its advanced automotive technologies continue to emerge and take a greater share of the overall global automobile market, demand for its products and technologies should grow.

That said, the company also has numerous challenges with which to contend. First and foremost, it already faces significant competition from larger companies, such as TSLA, that possess powerful innovative capabilities and strong brand images. Additionally, as a Chinese company, it faces significant political risk (as Alibaba (BABA) recently learned the hard way), accounting risk, and execution risk. The latter risk is due to the fact that it is still a smaller scale business that has to deliver on aggressive growth expectations.

Valuation Metrics

Despite these challenges, NIO still possesses a strong position in the space, giving it a significant edge to leverage in terms of industry-specific consumer data and network. However, its valuation remains elevated. The forward price to cash flow is a whopping 95.6x, and the company is not profitable yet on a GAAP basis, while simultaneously bleeding cash.

The good news is that revenue is expected to triple over the next two years and the business should finally be profitable on an EBITDA basis in 2022, though the EBITDA margin will still likely be razor thin at just 2.3%.

Between its backing from the Chinese government and its $47.2B cash and short-term investments stockpile, it should have the financial backing it needs to fund its ambitious ventures and reach profitability within a few years. However, it remains highly speculative given that it must deliver on massive growth expectations in a short period of time, against significant challenges.

Wall Street’s Take

From Wall Street analysts, NIO earns a Strong Buy analyst consensus based on 8 Buy ratings in the past 3 months. Additionally, the average analyst Nio price target of $61.91 puts the upside potential at 31.98%.

Summary and Conclusions

NIO is a highly speculative investment right now, as it has a very elevated valuation. Therefore, it must deliver on sky-high expectations in the face of numerous risks in order to deliver long-term investors a respectable return.

That said, it still has a lot going for it. Nio is strengthened by its status as a domestic leader in high-priority cutting edge technologies and a high visibility global industry. The Chinese government is likely to continue assisting the company directly and indirectly moving forward, and the strong tailwind from China’s growing middle class should also boost Nio significantly.

Overall, the business is likely to continue growing and analysts remain bullish on the shares here. That said, given its lofty valuation and steep climb to achieve profitability in the face of top-tier competition from the likes of TSLA, the stock remains a risky bet. Investors might be prudent to take that into account before establishing a position.

Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

The post NIO: Great Business, But Valuation Is Sky-High appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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