What Helped Insulet Stock Gain 10% This Week?

Insulet stock (NASDAQ: PODD) currently trades around $200 per share, about 35% lower than the levels of over $300 seen in early November 2021. In comparison, its peer – DexCom stock (NASDAQ:DXCM) – is down 55% over this period. The two stocks that focus on the glucose monitoring and insulin delivery market have been weighed down lately amid investors’ concerns about the potential negative impact of new GLP-1 drugs on their sales. The reduced risk of cardiovascular events for obesity drugs of Novo Nordisk and Eli Lilly may result in broader applications of obesity drugs, weighing on the demand for insulin pumps used to manage diabetes.

But Insulet stock caught a break this week and has moved up 10% after the company recently announced the U.S. FDA approval of Omnipod 5 for patients with type 2 diabetes. This label expansion makes Omnipod 5 the only automated insulin delivery system approved for both type 1 and type 2 diabetes. ^[1]

While PODD stock has been trending lower over a 3-year period, the decrease has been far from consistent. Returns for the stock were 4% in 2021, 11% in 2022, and -26% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that PODD underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including BGNE, RGEN, and CYTK, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could PODD face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a recovery?

Returning to the pre-inflation shock level of $318 implies that PODD stock will have to gain more than 50% from here, and we don’t think it will materialize anytime soon. PODD currently trades at 7x revenues, compared to its last three-year average P/S ratio of 14x. Insulet has enjoyed lofty valuation multiples in the past due to strong growth in its revenues and margins. Although a slight decline in valuation multiple seems justified given the threat from GLP-1 drugs, the recent regulatory approval for Omnipod should help narrow this valuation gap. Notably, the average analyst price estimate of $235 for PODD reflects an upside of over 15% for the stock from its current levels.

Our detailed analysis of Insulet’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen since 2022. It compares these trends to the stock’s performance during the 2008 recession.

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
• April 2021: Inflation rates cross 4% and increase rapidly.
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
• October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
• Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession but points to potential rate cuts in 2024

In contrast, here’s how PODD stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Insulet And S&P500 Performance During 2007-08 Financial Crisis

PODD stock saw a 70% decline from $21 in September 2007 (pre-crisis peak) to $6 in March 2009 (as the markets bottomed out). It recovered sharply after the 2008 crisis to levels of around $14 in early 2010, rising about 133% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

Insulet’s Fundamentals Over Recent Years

Insulet’s revenue rose 2x to $1.9 billion over the last twelve months, compared to $0.9 billion in 2020. Market share gains for its Omnipod system have buoyed Insulet’s revenue growth. The aging population in the U.S. and its rising awareness about diabetes products have aided the demand for insulin products. Not only did the company post stellar revenue growth, it saw its operating margin expand from 5.6% to 14.6% over the same period.

Does Insulet Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Insulet’s total debt increased from $1.1 billion in 2020 to $1.4 billion now, while its cash decreased from around $948 million to $821 million over this period. The company also garnered $285 million in cash flows from operations in the last twelve months. Given its solid cash cushion, the company is in a good position to service its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe PODD stock has the potential for gains once fears of a potential recession are allayed. That said, concerns over the broader application of obesity drugs and its impact on Insulet stock remain a key risk factor for realizing these gains.

[1] Returns as of 8/29/2024
[2] Cumulative total returns since the end of 2016Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates

1. Insulet’s Press Release, August 26, 2024 [↩]