Is Inspire Medical Systems Overvalued by 48%?

Inspire Medical Systems' estimated fair value is $243 based on a 2-stage free cash flow to equity model, indicating it may be 48% undervalued. The company's analyst price target of $211 is 15% lower than the estimated fair value. The DCF model takes into account the company's future cash flows and discounts them to their present value.

Title: Inspire Medical Systems' Valuation: A Deep Dive into Undervaluation and Analyst Targets

Inspire Medical Systems (INSP), a leading innovator in neurostimulation devices for sleep apnea treatment, has seen its stock price drop significantly in recent months, trading at $128 per share. Despite this, analysts and financial models suggest that the stock may be undervalued. This article delves into the company's valuation using a 2-stage free cash flow to equity (DCF) model, comparing it with analyst price targets to determine if Inspire Medical Systems is a compelling investment opportunity.

# Valuation Analysis

Inspire Medical Systems' estimated fair value is $243 based on a 2-stage DCF model, indicating a potential 48% undervaluation from its current trading price of $128. This model takes into account the company's future cash flows and discounts them to their present value. The model projects robust growth in the company's revenue and earnings, driven by the increasing number of domestic medical centers and the positive long-term EPS growth trend [1].

Analysts at Morgan Stanley have revised their price target for Inspire Medical Systems from $200 to $182, maintaining an Overweight rating. The average one-year price target among 16 analysts is $216.68, with a high estimate of $270.00 and a low estimate of $171.80. This average target implies an upside of 66.34% from the current price of $130.26 [2].

# Key Factors Influencing Valuation

Several factors contribute to Inspire Medical Systems' valuation:

1. Growing Patient Base: The company has surpassed 100,000 patients who have received Inspire therapy, reflecting strong market adoption of its neurostimulation devices [2].

2. Financial Performance: Inspire Medical Systems reported a 23% increase in revenue for the first quarter of 2025, reaching $201.3 million. The company also announced the full launch of the Inspire V system in the US, which is expected to enhance therapy capabilities and broaden indications [2].

3. Operating Expenses: Operating expenses increased by 11% in Q1 2025, primarily due to the expansion of the sales organization and general corporate costs. However, this increase is seen as a necessary investment for future growth [2].

4. Free Cash Flow: Inspire Medical Systems' free cash flow margin expanded by 48.2 percentage points over the last five years, reaching 9.4% for the trailing 12 months. This indicates a less capital-intensive business model and improving financial health [1].

# Conclusion

While Inspire Medical Systems has faced challenges in recent quarters, including a potential transition period due to the launch of the Inspire V system and inventory destocking, the company's strong financial performance and robust growth prospects suggest that it may be undervalued. The estimated fair value of $243, based on a 2-stage DCF model, indicates a 48% undervaluation from the current stock price. Analysts also maintain a positive outlook, with an average one-year price target of $216.68, supporting the potential for significant upside.

For investors considering Inspire Medical Systems, the current stock price presents an opportunity to buy into a promising growth story with a potential for substantial returns. However, it is essential to monitor the company's progress in transitioning to the Inspire V system and addressing any challenges in international markets.

# References

[1] https://finance.yahoo.com/news/inspire-medical-systems-insp-buy-040649322.html
[2] https://www.gurufocus.com/news/2976910/inspire-medical-insp-price-target-reduced-by-morgan-stanley-insp-stock-news