Generally, a stock with a price of below $5 can be considered a penny stock. Penny stocks are an attractive bet for investors with a high-risk appetite. These companies usually have a market cap of less than $1 billion and the potential to grow your investment at an exponential rate. A smaller-sized company enjoys significant flexibility allowing them to pivot towards a new business or enter high-growth markets.
Today I’ll take a look at ReWalk Robotics (RWLK) to see if it is currently a good investment. Valued at a market cap of less than $75 million, ReWalk is a medical device company that designs, develops, and commercializes wearable robotic exoskeletons for individuals with mobility impairments.
The company offers products such as ReWalk Personal and ReWalk Rehabilitation for those with spinal cord injuries. Its ReStore is a soft exo-suit that is used for the rehabilitation of individuals with lower limb disabilities. These products are marketed and sold directly to third-party payers as well as to institutions, individuals, and distributors.
ReWalk Robotics sales fell to $4.39 million in 2021
Sales for ReWalk Robotics have fallen from $7.75 million in 2017 to $4.39 million in 2020. However, Wall Street expects sales to rise by 39.8% to $6.14 million in 2021 and by 54.7% to $9.5 million in 2022. Its adjusted loss per share is also forecast to narrow from $0.82 in 2020 to $0.25 in 2022.
In the second quarter of 2021, it reported sales of $1.4 million which was the company’s fourth consecutive quarter of sequential growth. It ended Q2 with a gross margin of 51% but reported an operating loss of over $2 million as operating expenses stood at $3.9 million.
We can see that ReWalk is focused on plowing resources into sales and marketing, to boost its top-line, sacrificing profitability in the process.
However, the company’s sales were down year over year compared to revenue of $1.7 million in Q2 of 2020. The decline was attributed to the lower number of ReWalk Personal 6.0 units sold in Germany.
ReWalk Robotics is a high-risk bet
Similar to most other micro-cap stocks, ReWalk Robotics is a high-risk bet given its negative profit margins and inconsistent revenue growth. While sales are expanding at a rapid pace this year and are forecast to accelerate in 2022, ReWalk stock will continue to remain vulnerable.
The stock is expensive and is trading at a forward price to 2022 sales multiple of 6.63. ReWalk has grossly underperformed the broader markets in the past and has lost 93% of its market value in the last three years, despite its gain of 52% since October 2020.
Shares of ReWalk Robotics fell off a cliff last week after the company disclosed it will raise $32.5 million via an equity offering to increase sales and marketing spending as well as to support research and development expenses.
We can see that ReWalk targets a very niche sector and its products might not warrant repeat purchases. It will have to position itself as a market leader and improve brand awareness, expand bottom-line margins and post consistent revenue growth to outpace broader market gains.
Even under $2, its current valuation is steep and investors should instead focus on other stocks that have better multiples, a lower cash burn rate, and a robust balance sheet.
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RWLK shares were trading at $1.48 per share on Wednesday afternoon, down $0.13 (-8.07%). Year-to-date, RWLK has gained 12.12%, versus a 17.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
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