BRAZIL – 2020/10/29: In this photo illustration the CONMED Corporation logo seen displayed on a … [+]
SOPA Images/LightRocket via Getty Images
We think that Insulet stock (NASDAQ: PODD), a company best known for selling the Omnipod continuous insulin delivery system that caters to people with diabetes, currently is a better pick compared to ConMed (NASDAQ: CNMD), a medical devices company that specializes in products for orthopedic and general surgery, despite PODD being the more expensive of the two with its P/S ratio of 16x, compared to just 4x for CNMD. We compare these two healthcare companies due to their similar revenue base. Although both the companies saw a rise in revenue over the last twelve months, the growth has been better for Insulet.
If we look at stock returns, ConMed’s 14% growth is better than the 1% returns for Insulet over the last twelve months. This compares with 16% growth in the broader S&P 500 index. While both the companies are likely to see continued top-line expansion, Insulet is expected to outperform. There is more to the comparison, and in the sections below, we discuss why we believe that PODD stock will offer better returns than CNMD stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis ConMed vs. Insulet: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. Insulet’s Revenue Growth Has Been Stronger
Both companies managed to see sales growth over the last twelve months. Still, Insulet has witnessed comparatively faster revenue growth of 21.5% vs. 17.2% for ConMed.
Looking at a longer time frame, Insulet’s sales grew at a CAGR of 25% to $1.1 billion over the last twelve months, compared to $0.6 billion in 2018, while ConMed’s revenues grew at a CAGR of 6% to $1.0 billion currently.
For Insulet, the revenue growth has been buoyed by market share gains for its Omnipod system. The aging population in the U.S. and rising awareness about the products have aided the demand for Insulet’s products.
For ConMed, the revenue growth over the recent years has been affected due to the impact of the Covid-19 pandemic on its business, as hospitals and other healthcare institutions deferred non-urgent surgeries. ConMed derives most of its revenues from single-use products, which are expected to be recurring. This is likely to result in stable top-line growth over the coming years.
Our ConMed Revenue and Insulet Revenue dashboards provide more insight into the companies’ sales.
Looking forward, Insulet’s revenue is expected to grow at a faster pace compared to ConMed over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 18.3% for Insulet, compared to a 5.5% CAGR for ConMed, based on Trefis Machine Learning analysis.
Note that we have different methodologies for companies negatively impacted by Covid and for companies not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
ConMed Is More Profitable, But It Comes With Higher Risk
ConMed’s operating margin of 14% over the last twelve months is much better than just 2% for Insulet.
This compares with 12% and 2% figures seen in 2019, before the pandemic, respectively.
Our ConMed Operating Income and Insulet Operating Income dashboards have more details.
ConMed’s free cash flow margin of 11% is much higher than -6% for Insulet.
Looking at financial risk, ConMed’s 17% debt as a percentage of equity is higher than 8% for Insulet, while its 1% cash as a percentage of assets is much lower than 39% for the latter, implying that Insulet has a better debt position and cash cushion.
3. The Net of It All
We see that Insulet has demonstrated better revenue growth, and it offers lower financial risk. However, ConMed is more profitable, and it is available at a relatively lower valuation.
Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Insulet is currently the better choice of the two.
The table below summarizes our revenue and return expectation for ConMed and Insulet over the next three years and points to an expected return of 80% for PODD over this period vs. a 6% expected return for CNMD stock, implying that investors are better off buying PODD over CNMD, despite its high valuation, based on Trefis Machine Learning analysis – ConMed vs. Insulet – which also provides more details on how we arrive at these numbers.
While PODD stock may outperform CNMD, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Medtronic vs. Masco.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates