iRhythm: Heart-Felt Investment

07/11/2017 2:54 am EST

Focus: HEALTHCARE

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

The major trend for stock is still up, but intermediate-term, the onus is on the bulls, as many stocks have fallen toward key support, notes growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

A couple of big selloffs from here would be a red flag, especially for names that have had big runs during the past year, though a strong sign of support could arrest the decline.

Right now, we remain mostly bullish because many stocks are still in good shape, especially early-stage growth stocks that are trading resiliently and new leadership is emerging as money rotates into other areas.

iRhythm Technologies (IRTC) is a small firm with a potentially revolutionary product. The company’s Zio technology is a wearable patch heart monitor that can give up to two weeks of electrocardiogram (ECG) data on cardiac arrhythmias like atrial fibrillation.

Extended monitoring is recommended for patients who have undergone an ablation procedure for the treatment of an arrhythmia as well as diagnostic monitoring for suspected arrhythmias.

The gold standard for this kind of monitoring has been a Holter monitor, a portable device that uses between three and eight attached electrodes and a recording device that either hangs on the patient’s neck or is attached to the belt.

iRhythm’s Zio patch is a compact, wire-free wearable device that packs both electrodes and recording technology into an unobtrusive water-resistant patch.

The Zio device was found to be “substantially equivalent” to a Holter in 2013. But iRhythm is being favored by investors now because a recent study by a number of professional organizations found that Zio’s long-duration recording and ease of use actually made it superior to Holter technology in post-ablation monitoring.

iRhythm’s 150-million-hour database of sample ECGs is also useful to physicians for diagnostic purposes. The cardiac monitoring market in the U.S. is around $1.4 billion annually, and while iRhythm isn’t yet profitable, revenue growth has been strong — 66% in 2015 and 73% in 2016.

IRTC came public in October 2016 at $26, and after a couple of false starts, soared to $40 in February 2017. The stock’s orderly dip to the low $30s in April and May looks like its post-IPO consolidation.

The stock then blasted off on heavy volume in June and continued higher all month. You can buy on any weakness, with a stop around $38.

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