2 Reasons INSP is Risky and 1 Stock to Buy Instead

Shareholders of Inspire Medical Systems would probably like to forget the past six months even happened. The stock dropped 49.8% and now trades at $49.36. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in Inspire Medical Systems, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Inspire Medical Systems Not Exciting?

Even with the cheaper entry price, we don’t have much confidence in Inspire Medical Systems. Here are two reasons why there are better opportunities than INSP, plus one stock we’d rather own.

1. Fewer Distribution Channels Limit Its Ceiling

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $915.2 million in revenue over the past 12 months, Inspire Medical Systems is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Inspire Medical Systems’s revenue to drop by 8%, a decrease from its 46.8% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will face some demand challenges.

Final Judgment

Inspire Medical Systems isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 49.8× forward P/E (or $49.36 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a dominant aerospace business that has perfected its M&A strategy.

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