Medical technology company Senseonics Holdings, Inc. (SENS), which is headquartered in Germantown, Md., designs, develops, and commercializes continuous glucose monitoring (CGM) systems. SENS’ shares have surged 343.9% in price year-to-date, fueled by the frantic trading of amateur investors based on discussions on the Reddit forum. But the stock has declined 2.8% over the past five days, reflecting investor concerns over its underwhelming second-quarter earnings report.

Closing yesterday’s session at $3.87, the stock is currently trading 30.4% below its 52-week high of $5.56.

Although SENS’ implantable Eversense CGM System to help patients manage their glucose levels holds promise, the application for the device is still under FDA review. So, it could take a while before the diabetes monitoring product  starts generating revenues. Furthermore, the heavily shorted stock’s lofty valuation could make investors anxious.

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Here’s what could influence SENS’ performance in the near term:

Volatility in Meme Stocks

A surge in interest from retail investors glued to social media platforms, including subreddit r/wallstreetbets, has this year driven unpredictable swings in several stocks with little regard for the underlying fundamentals or valuation. While the meme stock craze has fueled wild rallies in stocks that include GameStop Corporation (GME), AMC Entertainment Holdings, Inc. (AMC), Clover Health Investments Corp. (CLOV), and SENS, higher risk and volatility have caused some investors to shun the speculative frenzy. Nearly 22% of SENS’ total floating shares have been sold short. So, once the retail traders cash out, the stock has the potential to suffer  a considerable price decline. .

Uncertainty Surrounding Product Launch in the U.S. Market

In June, SENS announced the clinical results of the PROMISE Study that evaluated the accuracy and safety of the  180-days version of its  Eversense CGM System. The study’s positive results demonstrate the vital role the implantable CGM device could play in managing glucose levels in patients. While this has been a positive catalyst for the stock so far, SENS is still awaiting FDA approval concerning its application submissions. Until the CGM device maker’s product receives approval from the FDA, its commercialization prospects remain uncertain.

Faltering Financials

SENS’ total revenue was $3.29 million for the second quarter, ended June 30, 2021, versus  $261,000 in the second quarter of 2020. However, its general and administrative expenses stood at $7.53 million for the quarter, up 69.4% year-over-year. Furthermore, the company’s operating loss amounted to $11.7 million, representing a 26.9% increase from the prior-year quarter. SENS reported a $180.31 million net loss versus $7.52 million in the prior-year quarter. Its loss per share stood at $0.42, while its interest expense came in at $4.03 million during this period.

The company’s trailing-12-month ROA and cash from operations are negative 236% and $52.05 million, respectively. Its  40.1% trailing-12-month gross profit margin is 27.4% lower than the 55.3% industry average. Also, its 0.1% asset turnover ratio is 78.4% lower than the 0.4% industry average.

Premium Valuation

In terms of forward Price/Sales, the stock is currently trading at 119.89x, which is 1,397.32% higher than the 8.01x industry average. Also, its 114.28 forward EV/Sales multiple  is 1,576% higher than the 6.82x industry average.

Consensus Price Target Indicates Potential Downside

Currently trading at $3.87, Wall Street analysts expect the stock to hit $0.88 in the near term, representing a 77.3% potential decline.

POWR Ratings Reflect Bleak Prospects

SENS has an overall F rating, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. SENS has a D grade for Quality. This reflects the stock’s negative ROA and cash flow from operations.

In terms of Value grade, the company has an F, reflective of its premium valuation. Also, it has an F grade for Stability.

Beyond the grades we’ve highlighted, one can check out additional SENS ratings for Sentiment, Growth, and Momentum here. Of the 59 stocks in the D-rated Medical – Diagnostics/Research industry, SENS is ranked #54.

Bottom Line

While  Reddit-fueled hype has driven SENS’ shares to crazy highs so far this year, we think the company’s weak business fundamentals could cause its shares to tumble soon. Furthermore,  the company’s  increasing losses and cash burn do not justify its premium valuation. Also,  uncertainty surrounding the commercialization of its implantable CGM device in the U.S. market could raise investors’ concerns. So, we think the stock  is best avoided now.

How Does Senseonics Holdings (SENS) Stack Up Against its Peers?

While SENS has an overall F (Strong Sell) rating in our proprietary rating system, one might want to consider taking a look at its industry peers Bruker Corporation (BRKR), Agilent Technologies, Inc. (A), and Global Cord Blood Corporation (CO) having an A (Strong Buy) rating.

Note that A is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

Click here to checkout our Healthcare Sector Report for 2021

SENS shares fell $0.01 (-0.26%) in premarket trading Thursday. Year-to-date, SENS has gained 343.91%, versus a 20.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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