Exagen Inc. (XGN): Insider Confidence and Undervaluation Signal Buying Opportunity Ahead of Key Earnings

Exagen Inc. (NASDAQ:XGN), a diagnostic solutions provider focused on autoimmune and cardiovascular diseases, has become a microcosm of investor sentiment divides. While institutional investors like NMSIC Co-Investment Fund have reduced stakes, executives at the top are doubling down—CEO John Aballi and CFO Jeffrey Black have made significant stock purchases or grants in 2025. This insider activity, coupled with a P/S ratio 57% below the biotech sector average, raises a critical question: Is this a buying opportunity ahead of the company's upcoming earnings report?

Insider Buying: A Bold Signal of Confidence

The most compelling catalyst here is the insider buying pattern from Exagen's leadership. CEO Aballi received a stock grant of 29,829 shares at $3.46 in February 2025, while CFO Black purchased 66,448 shares in late 2024 at $2.98. These transactions occurred at prices far below the current $7.00 stock price, suggesting executives believe in a sustained upward trajectory.

This contrasts sharply with the actions of institutional investors like NMSIC, which sold 840,000 shares in late 2024 at $4.20—a move that could reflect concerns over the company's high debt load ($23.56M) or recent regulatory challenges (e.g., the revocation of its Municipal Advisor registration). However, insider buying often carries greater weight, as executives possess inside knowledge of operational progress.

Valuation Discount: A 57% Discount to Biotech Peers

Exagen's Price-to-Sales (P/S) ratio of 2.26 as of June 2025 is 57% below the biotech industry average of 6.42. This stark discount is puzzling given the company's recent strides:
- Q1 2025 revenue hit $15.5M, an 8% year-over-year increase.
- The average selling price of its AVISE CTD test rose to $419, signaling pricing power.
- Plans to launch new seronegative markers by late 2025 could further boost revenue.

Analysts project 15% annual revenue growth over the next three years—modest compared to the sector's 163% average—but this undervaluation creates a high reward-to-risk ratio. A P/S ratio closer to 4x (still below the sector average) would imply a stock price of $10+, a 43% upside from current levels.

Mixed Institutional Activity: A Buying Opportunity for Longs

While NMSIC's sale highlights institutional caution, other signals are encouraging. Exagen's short interest remains low at 0.94% of shares outstanding, suggesting limited bearish pressure. Meanwhile, the CFO's 2024 purchase and CEO's 2025 grants indicate leadership is aligning its interests with long-term investors.

Key Catalyst: Q2 Earnings and Margin Improvements

The upcoming Q2 earnings report, expected in late August, could be a turning point. Management aims to:
- Achieve positive adjusted EBITDA by Q4 2025.
- Lift gross margins to the low 60% range through cost efficiencies.
- Secure TRICARE coverage and Medicare Advantage appeals, unlocking broader reimbursement access.

A beat on these metrics could finally narrow the valuation gap with peers. Even a modest EBITDA breakeven in Q4 would signal operational stability, potentially unlocking a re-rating.

Risk Factors to Monitor

• Debt refinancing: The $50M credit facility with Perceptive Advisors provides breathing room, but debt-to-equity remains high at 3.68.
• Clinical trial outcomes: New biomarkers for seronegative diseases must prove efficacy and demand.
• Regulatory hurdles: The Municipal Advisor revocation, while non-core, could distract resources.

Investment Thesis

Exagen presents a compelling high-risk, high-reward scenario. The combination of insider confidence, an undervalued P/S ratio, and upcoming catalysts (earnings, margin improvements, reimbursement wins) suggests a favorable risk-reward profile.

Recommendation:
- Buy at current levels with a 12-month price target of $10 (43% upside).
- Stop-loss at $5.50 to protect against a failed Q2 earnings report or margin misses.
- Hold for 6–12 months, focusing on EBITDA breakeven and reimbursement milestones.

While risks like high debt and execution uncertainty remain, the discount to peers and leadership's skin-in-the-game make this a watchlist candidate for growth investors. The next 90 days could redefine Exagen's valuation narrative—if Q2 delivers, this stock is primed to surge.