Every investor hopes to discover a growth stock, one poised for rapid appreciation and substantial long-term returns. The real challenge lies in discovering the right opportunities.
Several research firms are now identifying medical device companies as promising candidates. According to KPMG, the medical device industry is on a steady upward trajectory, with global annual sales expected to grow by more than 5% per year and reach nearly $800 billion by 2030. BCC Research offers an even more optimistic outlook, expecting the market to outperform. $953 billion by 2027.
The reason behind this optimism is simple: innovation. Medical device companies are developing new tools that help healthcare professionals provide better diagnoses, more effective treatments and better patient outcomes. As technological advancements accelerate and an aging population increases demand for healthcare solutions, the industry will benefit from both long-term trends and urgent needs. All of this makes medical device stocks solid choices for investors looking for growth.
That’s exactly why Kyle Bauser, an analyst at B. Riley, recently highlighted two medical device stocks that he thinks will post solid gains — specifically on the order of at least 60%.
Additionally, after using TipRanks’ database, we found that Bauser’s picks have received enough positive reviews from the broader analyst community to earn a consensus rating of ‘Strong Buy’. Let’s take a closer look.
InfuSystem holdings (INFU)
The first stock we’ll look at, InfuSystem, is a device company that partners with hospitals, surgical centers, and oncology practices and offers a variety of infusion pump products. These devices are designed to calibrate the doses of fluids for intravenous administration. They are often used in the administration of medications and nutrients – fluids that must be monitored and given to the patient in controlled amounts and doses. InfuSystem’s pumps can deliver fluids directly to the patient’s body and are available in high volume and ambulatory designs.
Customers can choose to purchase or rent the infusion pumps, knowing that InfuSystem can supply more than 60 different models under the brand names that medical providers trust. Pumps are available new or used, and are guaranteed – even used pumps are backed by a 90-day warranty. InfuSystem’s rental option gives its customers options for flexible management of their inventory and allows for turnover when newer models are available.
In addition to providing hardware for infusion pump systems, the company also provides services to support them. InfuSystem offers both preventive maintenance and repairs and makes the service data of devices available to the customer. The activities of this company show that a supplier of medical equipment does not have to work with the latest technology to be at the forefront. InfuSystem is working to smooth out the bumps in one of the most vital parts of the medical industry, and its supply chain.
While this may seem like a modest undertaking, the InfuSystem delivered record revenue in the second quarter of this year. The company reported $33.7 million in revenue, up 6% year over year. Broken down by the company’s divisions, Patient Services revenue was $20.2 million, while Device Solutions generated $13.5 million. Ultimately, the company achieved a profit of 3 cents per share by GAAP standards. We should note that InfuSystem has seen a pattern of ‘slow and steady’ revenue growth in recent years.
This stock’s strong performance and strong position in an essential medical niche caught the attention of B. Riley’s Bauser. “INFU has built a network of more than 800 payer contracts, covering more than 96% of lives in the U.S., which we believe creates a significant competitive advantage and a barrier to entry for potential competitors,” Bauser said. “We believe the stock is significantly undervalued due to non-fundamental issues (e.g. earnings misses and delayed filings) and that the stock should be revalued as the company continues last quarter’s momentum: INFU is trading at 1 .3x revenue and 7.1x adjusted EBITDA. versus the peer group at 2.2x and 11.6x respectively. We expect revenue to grow in the high single digits this year, with an adjusted EBITDA margin in the high percentages on a percentage basis. We further expect margins to exceed 20% in the next 12 to 24 months.”
These comments support the analyst’s buy rating, and his $13 price target implies a 97.5% one-year upside. (To view Bauser’s track record, click here)
Overall, there are three recent analyst ratings here, and they are all positive, making the Strong Buy consensus rating unanimous. The sales price of $6.58 and the average target price of $12.75 together indicate a 94% upside potential over the next twelve months. (To see INFU stock forecast)
Tactile system technology (TCMD)
The next stock on our list, Tactile Systems, works in the field of high technology. The focus of this company is on developing devices for the treatment of chronic conditions, especially chronic swelling and/or breathing difficulties. These are not necessarily diseases in themselves, but they are often symptoms and can have a major impact on the patient’s quality of life.
To help improve that quality of life, Tactile Systems offers a range of wearable products designed for intermittent pneumatic compression, which is a regular and gentle squeezing movement to reduce swelling or lymphedema. The company offers these device solutions for three different parts of the patient’s body: the head and neck; the upper body; and the lower body. The company reports that the Flexitouch system has achieved a 96% patient satisfaction rate and delivered a 37% reduction in the cost of lymphedema-related expenditures per patient.
Chronic respiratory problems are also linked to multiple health conditions, and Tactile Systems designed the AffloVest as a mobile therapy for airway clearance. The vest can be worn over regular clothing and has been shown to help loosen and remove built-up mucus in the lungs, making it easier for patients to breathe.
Tactile Systems has recognized an important medical need – and built a business to meet it. In its Q2 24 report, the company showed revenue of $73.2 million, up more than 7% year over year and a modest $390,000 better than expected. The company’s net income was 18 cents per share, which also exceeded expectations – by 6 cents per share.
Contacting analyst Bauser again, we find him optimistic here, noting that the company has targeted a large, totally addressable market. Bauser says of Tactile Systems: “Lymphedema and respiratory diseases continue to be grossly underdiagnosed, undertreated and undertreated. We believe that TCMD has several opportunities to capitalize on these markets through investments in products, patient services, and sales and ordering activities. Simplifying the sales process and continued improvements to scale are likely to increase market access and ultimately profits.”
“There are nearly 2 million patients diagnosed with lymphedema in the U.S., and another approximately 20 million undiagnosed cases. Within the bronchiectasis patient population, there are roughly 500,000 diagnosed cases and 4.4 million undiagnosed patients,” Bauser continues. “We believe the improved margin profile remains significantly undervalued, as is the current valuation.”
Looking ahead, the B. Riley analyst rates the stock Buy, with a $23 price target, implying 61.5% upside over one year.
Wall Street’s consensus rating here is Strong Buy, based on three recent positive reviews. The shares are trading at $14.24 and have an average price target of $20.33, suggesting a one-year upside potential of 43%. (To see TCMD stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is for informational purposes only. It is very important to do your own analysis before making an investment.
