Is This The Right Entry Point To Add Inspire Medical Systems (INSP)?

Madison Investments, an investment advisor, released its “Madison Small Cap Fund” second-quarter 2024 investor letter. A copy of the letter can be downloaded here. In the second quarter, the fund declined 1.06% outperforming a 3.28% decline for the Russell 2000 Index and a 4.27% decline for the Russell 2500 Index. In the second quarter, the small-cap market was weak. Strong stock selection drove the outperformance. In addition, you can check the fund’s top 5 holdings to know its best picks in 2024.

Madison Small Cap Fund highlighted stocks like Inspire Medical Systems, Inc. (NYSE:INSP), in the second quarter 2024 investor letter. Inspire Medical Systems, Inc. (NYSE:INSP) is a medical technology company, focuses on the development and commercialization of minimally invasive solutions for patients with obstructive sleep apnea. The one-month return of Inspire Medical Systems, Inc. (NYSE:INSP) was 6.24%, and its shares lost 50.27% of their value over the last 52 weeks. On July 19, 2024, Inspire Medical Systems, Inc. (NYSE:INSP) stock closed at $143.74 per share with a market capitalization of $4.271 billion.

Madison Small Cap Fund stated the following regarding Inspire Medical Systems, Inc. (NYSE:INSP) in its Q2 2024 investor letter:

"Portfolio activity was de minimis in the second quarter. We initiated positions in Inspire Medical Systems, Inc. (NYSE:INSP) and Option Care Health (OPCH). The INSP purchase was based on our work suggesting the total addressable market for INSP’s hypoglossal nerve stimulation (HGNS) device for moderate to severe sleep apnea was quite large, and further refinements to the device would increase the utilization of patients looking for an alternative to CPAP. CPAP, while a very successful form of therapy, has a high non-compliance rate of 35%. The business has great gross margins and significant operating leverage as revenue scales. Revenue growth has been exceptionally strong, averaging 65% per annum over the last five years. The barriers to entry for its product are bolstered by strong clinical data and its head start in the HGNS market. Our work suggests that competitors will be at a significant technological disadvantage when they launch. We forecast $17/share earnings power by 2030. The stock had pulled back significantly following their fiscal Q2 due to unrealistically high expectations for increased guidance. We believed this was an opportunistic entry point. However, recent clinical data around the impact of GLP-1s on moderate to severe sleep apnea were more constructive than expected. While we think the impact on INSP’s market is minor, we believe it prudent to step away from the investment currently. We will continue to monitor the investment and will revisit the name once the current volatility recedes."

A medical professional performing a minimally invasive procedure while using the company's technology.

Inspire Medical Systems, Inc. (NYSE:INSP) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 38 hedge fund portfolios held Inspire Medical Systems, Inc. (NYSE:INSP) at the end of the first quarter which was 46 in the previous quarter. In the first quarter, Inspire Medical Systems, Inc. (NYSE:INSP) generated revenue of $164 million, which represents a 28% increase compared to Q1 2023. While we acknowledge the potential of Inspire Medical Systems, Inc. (NYSE:INSP) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

In another article, we discussed Inspire Medical Systems, Inc. (NYSE:INSP) and shared Headwaters Capital Management's views on the company. In addition, please check out our hedge fund investor letters Q2 2024 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.