The Fundamentals of Senseonics Make No Sense

Senseonics Holdings (NYSEAMERICAN:SENS) develops medical technology, including “continuous glucose monitoring (CGM) systems for people with diabetes in the United States, Europe, the Middle East, and Africa.” The company’s product line includes implantable CGM systems that go under the user’s skin and a removable, rechargeable transmitter that works with an app made by the company. SENS stock represents a potential entry into the healthcare industry for investors, but is it worth it?

Diabetes is a serious illness affecting many people worldwide, so it’s natural to want a company that fights it to succeed. But SENS stock isn’t in great condition. This medical technology company may have a great product, but it does not have the technology or ability to support its stock based on its fundamentals.

Net Losses and Cash Burn

The company announced second-quarter 2021 financial results on Aug. 9. Here are some of the highlights:

• “Total revenue for the quarter was $3.29 million compared to $0.26 million for the second quarter of 2020. U.S. revenue was $0.98 million and revenue outside the U.S. was $2.31 million.”
• “Net loss was $180.32 million, or $0.42 per share, in the second quarter of 2021, compared to $7.52 million, or $0.03 per share, in the second quarter of 2020. Net loss increased by $172.81 million due to a $169.43 million increase in other expenses primarily related to non-cash accounting charges resulting from the accounting for embedded derivatives related to certain of the company financings, as well as a $3.36 million increase in loss from operations.”
• “As of June 30, 2021, cash, cash equivalents, short and long-term investments were $215.0 million and outstanding indebtedness was $109.9 million.”

That’s plenty of cash but a lot of losses. This cash is the result of a series of stock offerings that have approximately doubled the number of shares. The cash raised should be used wisely for supporting and expanding business operations to create value and growth since this reduces the relative value of existing stock.

The company’s annual report revealed further information:

• Highly volatile revenue, declining from $4.9 million in 2019 to $1.4 million in 2020
• An operating loss of $79 million for 2020 compared to $131 million for 2019
• Net loss of $175 million for 2020 compared to $115 million for 2019

A few more key financial metrics that I do not like are the increase of long-term debt to $57.2 million for 2020 from $11.8 million in 2019, a total shareholders’ deficit of $144.1 million for 2020 from a deficit of $8.65 million in 2019 and consistently negative cash flow.

The company’s negative free cash flow is probably due to increased capital expenditure to support its growth. But it’s still not good for the fair value or attractiveness of SENS stock.

The 2021 Outlook for SENS Stock

In its quarterly report, Senseonics stated that the “company continues to expect that global net revenue to Senseonics for the full year 2021 will be in the range of $12.0 million to $15.0 million.”

Compared to the previous year’s revenue, that represents growth between 757% and 971%. Senseonics appears to be too optimistic about its future growth.

On page 7 of its investor deck, Senseonics estimates that its revenue in 2025 will be in the $150 million to $200 million range. Given its performance in the last several years, this just doesn’t seem plausible.

What SENS Stock Tells Us About Meme Stocks

The problem with meme stocks such as SENS stock is that they highly distort the market and the risks and rewards associated with it. Are meme stocks making quick profits for investors who neglect the fundamentals? In many cases, the answer is yes. Is that good? No, as it is pure speculation and there is an imminent stock bubble ready to burst just as quickly as it appeared.

Year-to-date, SENS stock has a return of 281%. It’s gone from a low of 35 cents to as high as $5.56 but is down to $3.32 on August 12.

All of this is purely the result of speculation, and with a history of net losses, massive stock dilution and a deficit for shareholder’s equity, it is advisable to avoid the stock.

On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.