What’s Next For Insulet Stock?

Insulet stock (NASDAQ: PODD) surged nearly 10% on Friday, November 8, after the company posted an upbeat Q3 and raised its sales outlook. It reported sales of $544 million and adjusted earnings of $0.90 per share, compared to the consensus estimates of $518 million and $0.77, respectively. Insulet is benefiting from increased adoption of its insulin delivery system Omnipod. Its latest product – Omnipod 5  – is the only automated insulin delivery system approved for both type 1 and type 2 diabetes. It was approved by the U.S. FDA in August this year.

Insulet’s revenue of $544 million reflected a 26% y-o-y growth, with both the U.S. and International Omnipod sales seeing strong growth of 23% and 36%, respectively. The aging population in the U.S. and an overall rise in awareness about diabetes products have aided the demand for insulin products over the recent years. Not only did Insulet see strong revenue growth, its adjusted EBITDA margin rose 410 bps y-o-y to 23.2% in Q3. Higher revenues and margin expansion resulted in the bottom line of $0.90 on an adjusted basis, versus $0.71 in the prior-year quarter. Looking forward, the company now expects its sales to rise between 20% and 21% in 2024, versus its prior outlook of 16% to 19% growth.

PODD stock, with 23% gains, has performed largely in-line with the broader markets (the S&P500 index is up 25%). However, the performance of PODD stock with respect to the index over the last three-year period has been quite volatile. Returns for the stock were 4% in 2021, 11% in 2022, and -26% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it 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 around rate cuts, 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 strong jump? From a valuation perspective, we think PODD stock is appropriately priced at levels of around $270. It currently trades at 11x trailing revenues, compared to the stock’s average P/S ratio of 14x over the last three years. Although PODD stock is trading at a valuation multiple slightly lower than the historical average, we think that the decline seems justified, given the potential impact of new GLP-1 drugs on Insulet’s sales in the long term. The reduced risk of cardiovascular events from obesity drugs of Novo Nordisk and Eli Lilly may result in broader applications of these drugs, which could potentially weigh on the demand for insulin pumps used to manage diabetes.

[1] Returns as of 11/11/2024
[2] Cumulative total returns since the end of 2016