iRhythm Finds the Right Beat

08/25/2020 5:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Heart disease claims the lives of more than half a million Americans each year, making it the nation’s leading cause of death, asserts growth stock specialist Mike Cintolo, editor of Cabot Top Ten Trader.

The ability to diagnose and treat irregular heartbeat is therefore paramount, and iRhythm Technologies (IRTC) is making that task easier for healthcare workers and heart patients.

Using its cloud-based ZIO platform, iRhythm’s wearable devices obtain info from millions of heartbeats and diagnose arrhythmias faster than traditional approaches, representing a change in the way arrhythmia is detected and treated.

The growth story has been solid for a long time, but it should get a boost going forward: A recent Centers of Medicare and Medicaid Services proposed payment rate change for heart monitoring devices (which replaces the temporary codes covering the ZIO system) could have a positive impact on the company’s sales.

While revenue declined in Q2 (-3%) due to COVID-related impacts, iRhythm saw a steady recovery throughout the quarter, exceeding its expectations.

Average daily and weekly registration rates expanded steadily through the quarter, with June hitting nearly 90% of pre-COVID levels — thanks to its digital platform-enabled home enrollment service (the firm sees this platform as integral to its future success).

While management suspended guidance, analysts see the top line rising 10% in Q3, with growth steadily accelerating from there (39% revenue bump expected in 2021, though a lot will depend on how the Medicare change affects it).

Moreover, iRhythm sees its addressable market at $2 billion, leaving lots of room for expansion as it establishes a leadership position in first-line heart monitoring.

Technically, IRTC was one of the first stocks to burst to new highs in April, but instead of following through, it wasn’t done consolidating, building a new 11-week structure through July.

But now the strength seen soon after the market lows has reappeared, with the stock going nuts on earnings and on the Medicare news, soaring wildly before pulling back on light volume in recent days. IRTC has a history of being squirrelly, but we think the recent dip marks a solid entry point.

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