iRythm’s Stock Slides -21% as Investor Day and Future Targets Disappoint
Discusses key highlights from the investor day with market commentary
San Francisco headquartered med tech firm iRhythm Technologies (US:IRTC) investors had a tough end to the week with the stock sliding -21% after reaching $155 by Tuesday as the firm's investor day induced selling. IRTC was trading 3.6% higher by the close of Tuesday before the event.
The digital healthcare firm that develops monitoring solutions that can help detect and prevent disease held their investor day on Wednesday morning at 9am where management delivered medium term targets through to 2027 in a five-year financial plan.
iRhythm’s President and CEO Quentin Blackford discussed the group's refreshed vision and mission to pursue growth strategies that will see the company achieve a target of $1 billion in group revenue by 2027.
The goal will require about 20% compounding annual growth per anum that will include expansion into selected international markets and adjacent markets that offer potential upside.
Blackford also stated that the plan will see gross margins strengthening to 73% which will be a 450 basis point improvement from the 2022 guidance midpoint.
The firm is targeting an adjusted EBITDA margin of 15% which implies an improvement of 1,850 basis points from the mid-point of the 2022 guidance provided. This will be achieved by management unlocking significant leverage from G&A cost savings and from the gross margin improvements.
IRTC believes they can deliver over $250 million in anticipated gross savings by 2027.
Management intends to drive further U.S. market expansion with continued penetration in the core market through the provision of services to cardiologists and broadened focus to provide services to primary care physicians (PCP).
The international expansion will focus on seven prioritized countries that combined have an anticipated market opportunity of over $1 billion themselves.
Management also reiterated full year guidance at the investor day where they expect to generate between $415 to $420 million in sales, representing 29-30% over the year. They expect another negative adjusted EBITDA of -$12.5 to -$17.5 million with operating expenses for the year between $375 to $385 million.
The investor day and strategy plan were not enough to please investors with the stock slipping -15% on the day. The two days that followed saw continued selling through to the end of the week which pushed the stock a further -6% lower.
Despite the weakness, IRTC still remains up 1.7% over 2022 and up over 100% when looking at a 1 year rolling return.
Analyst Allen Gong from JP Morgan came away from the analyst day feeling bullish on the long-term trajectory of the business. Gong believes the top line guidance was better than investor expectations and highlighted that IRTC now trades at a discount to the high-growth SMID-cap peer group. JP Morgan remains ‘overweight’ rated on the stock with a $190 target which rose $5 after the investor day.
Elsewhere, Margaret Kaczor from William Blair came away from the meeting continuing to believe that underlying demand for IRTC’s products Zio XT and AT will remain strong over the next several years as management focuses on improving market awareness and acceptance of its tech. William Blair held firm on their ‘outperform’ call for IRTC following the event.
On average, IRTC has a consensus ‘overweight’ recommendation and average target price of around $170.
Sentiment in the underlying options market for IRTC remains bullish on the company, but at a weaker level after the investor day. This is explained by 
This ratio is calculated by assessing all disclosed open put and call interest in the market for a specific stock. A ratio skewed towards 0 suggests bullish sentiment exists in the stock with call option volume outweighing put option volume, while a number above 1 would indicate put volumes are larger than call volumes.
The chart to the right illustrates how this ratio has behaved over the past 6 months. We can see in late September where the ratio spiked while the share price dropped at the same time.
The table below shows the spike in put volume and interest since the investor day confirming the change in sentiment in the market.
