Here’s Why I’m Bullish on PEN Stock
In a rising interest rate environment, Penumbra, Inc. (NYSE:PEN) is just the kind of initial public offering (IPO) that can beat the rest of the market in a slow-growth world. That’s why PEN stock is one of my favorite picks for 2016.
A new interest rate cycle is about to begin and industry sectors, like utilities and resources, traditionally underperform the rest of the market as the cost of capital goes up. However, in a slow-growth world, the healthcare sector remains one of the best areas for equity investors and medical devices are just the kind of recession-resistant enterprises that can do much better than the general economy.
Penumbra stock is a recent IPO that came to came to market with fervor. Like many IPOs, the position drifted a bit after listing (above its selling price), but the company’s latest financials really got the stock moving.
PEN Stock: A Top-Line Growth Story Selling to Well-Heeled Customers
Penumbra is based in Alameda, California, selling specialized medical devices dealing with vascular health. Through a direct sales force, Penumbra sells its medical devices to hospitals. For international sales, it works with distributors. Currently, about one-third of the company’s sales occur outside the United States.
The business was founded in 2004, when management invested heavily in research and development. Its first neurovascular product was launched in 2007 and its first neurosurgical device was launched in 2014. To date, Penumbra has 14 product brands and virtually all of its medical devices are manufactured in-house in Alameda. The company has approximately 1,100 employees worldwide.
This micro-cap company closed its IPO on September 23, 2015, selling 4.6 million shares to the marketplace at $30.00 a share for gross proceeds of $124.8 million after fees. When the IPO closed, all of Penumbra’s outstanding convertible preferred shares were converted one-for-one to 19,510,410 shares of common stock.
Chart courtesy of www.StockCharts.com
Penumbra is a growth company. In its third quarter of 2015, total revenues were $50.4 million, representing a gain of 55% over the third quarter last year. However, total operating expenses grew significantly, as management increased its headcount (sales and admin). Additionally, the company incurred significant fees as part of the IPO process. As a result, Penumbra has basically broken even for the quarter, finishing with $159 million in cash.
Being an IPO, this stock is expensively priced, but it’s a business that’s worth following due to its growth prospects. All the company has to do is slightly beat expectations and this position will soar.
Next year, total sales are expected to grow just over 30% compared to 2015. Penumbra probably won’t turn a solid profit yet, as the business continues to invest in both new product development and its sales force. However, I like healthcare and medical device companies for investors in a slow-growth world, as they’re unaffected by higher interest rates; people are always spending money for healthcare, regardless of where interest rates sit.
The Bottom Line on PEN Stock
Penumbra stock is going to be volatile on the stock market, as its average trading volume is not yet robust. However, this is a growth story and selling to hospitals and medical specialists is a good business to be in with the right products.
The bottom line: PEN stock is worth keeping on your radar.