In May I wrote that Senseonics (NYSEAMERICAN:MEANING) the share should go from $ 1.80 to over $ 3.00 per share. Now it has happened; on August 9, SENS stock closed at $ 3.25 per share. Still, it still looks like a good buy from here.
Why? Well, over the past three months, SENS shares have seen a strong comeback. The stock bottomed out on May 13 at $ 1.71. Since then, however, it has climbed 90% from that August 9 price. Additionally, much of that gain has occurred since July 15, when SENS stock briefly hit a new low at $ 2.77.
So here’s why I believe there is a case for SENS today.
Where are things at with SENS Stock
Senseonics manufactures implantable long-term continuous glucose monitoring (CGM) systems for people with diabetes. Outside of its technology, however, one of the reasons SENS stock has risen is that the company recently announced that it had raised $ 50 million gross through a stock offering program on the. market (ATM). Now he has $ 69.75 million in cash on the balance sheet.
This is significant since the company has spent $ 30.4 million in the past six months. This can be seen in its recent filing 10-Q, in the unaudited condensed consolidated statement of cash flows (page 6). This shows that the loss in GAAP net income of $ 429 million for the six-month period was actually only $ 30.4 million in negative cash costs from an operating cash flow perspective.
Given that its first quarter cash loss was $ 16.3 million, this implies that the second quarter saw cash consumption of just under $ 14.1 million. It also implies that its annual consumption of cash at operating rate is only $ 56.4 million in the future. So, theoretically, it has enough cash ($ 69.75 million) to cover similar cash consumption over the next 12 months.
However, this is unlikely to happen. If the United States Food and Drug Administration (FDA) begins to approve its CGM system, the company can begin selling it in the United States. No doubt this will dramatically improve their cash consumption and likely result in positive Free Cash Flow (FCF) in the first year.
For example, analysts estimate average revenue at $ 13.82 million this year. What about next year? They forecast a turnover of 33 million dollars.
Where it leaves Senseonics
This is quite a high multiple for the title. For example, Yahoo! Finance recently reported a market cap of $ 1.39 billion for SENS stock. If its sales forecast of $ 33 million in 2022 comes to fruition, SENS stock is trading 42 times forward sales (i.e. $ 1.39 billion / $ 33 million).
It’s a little high, but given that its sales are expected to continue to increase each year, that might be reasonable. I postulated in my previous article that just like Dexcom (NASDAQ:DXCM) has performed well over the past five years, Senseonics will likely have a similar track record.
For example, In search of the alpha has an analyst survey predicting $ 160 million in sales by 2025. That’s 4.5 years away and its current value at 10% is 65.1% of that, or $ 104 million. This puts the SENS action on an advanced P / S multiple of only 13 times, which is not that unreasonable.
Also, suppose that by then the company can achieve a margin of 25% FCF. This then puts his gross FCF at $ 40 million, or $ 26 million in present value terms. But using a 1.5% FCF return (i.e. dividing $ 26 million by 1.5%), his target market value would be $ 1.73 billion. This implies that SENS stock is still worth 24% more (i.e. $ 1.73 billion / $ 1.39 billion) using its recent market cap. This puts the stock’s value at $ 4.03 per share.
What to do with SENS Stock
The point here is that there is still plenty of room for the stock to grow significantly. Here is an example. If we divide the $ 26 million current value estimate of the FCF by 1.0%, the market value should be $ 2.6 billion. That’s 87% higher than the August 9 price, or $ 6.08 per share.
So, depending on when FDA approval comes – and how quickly the company can roll out its implantable CGM systems – the inventory of SENS is likely to grow much more. My best guess is that it’s worth at least $ 4.03 and could be worth as much as $ 6.08 per share.
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As of the publication date, Mark R. Hake does not hold (directly or indirectly) any position in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Mark Hake writes about personal finance on mrhake.medium.com and run the Total Value of Return Guide that you can consult here.