Inspire Medical Systems (INSP): Buy, Sell, or Hold Post Q4 Earnings?

Shareholders of Inspire Medical Systems would probably like to forget the past six months even happened. The stock dropped 22.7% and now trades at $62.98. This may have investors wondering how to approach the situation.

Following the drawdown, is now the time to buy INSP? Find out in our full research report, it’s free.

Why Does INSP Stock Spark Debate?

Offering an alternative for the millions who struggle with traditional CPAP machines, Inspire Medical Systems (NYSE:INSP) develops and sells an implantable neurostimulation device that treats obstructive sleep apnea by stimulating nerves to keep airways open during sleep.

Two Things to Like:

1. Skyrocketing Revenue Shows Strong Momentum

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Inspire Medical Systems’s sales grew at an incredible 51.2% compounded annual growth rate over the last five years. Its growth surpassed the average healthcare company and shows its offerings resonate with customers.

2. Increasing Free Cash Flow Margin Juices Financials

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Inspire Medical Systems’s margin expanded by 19.2 percentage points over the last five years. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality. Inspire Medical Systems’s free cash flow margin for the trailing 12 months was 8.6%.

One Reason to be Careful:

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 $912 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. On the bright side, Inspire Medical Systems’s smaller revenue base allows it to grow faster if it can execute well.

Final Judgment

Inspire Medical Systems has huge potential even though it has some open questions. With the recent decline, the stock trades at 31.4× forward P/E (or $62.98 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.

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