Update Q1 2025 (updated 250510)

The latest user‐growth data suggest headwinds for top-line revenue, but management’s active repricing initiatives should help offset this. By combining modest user gains with targeted price increases, the company can still drive overall revenue growth. Hence no change to the overall estimation of rev. growth. (Correction in of the growth in the model from 17% entered by misstake down to 10%)
Short term, a weakening USD will also weigh on results: with roughly 40 % of revenue coming from the U.S. and the dollar down about 10–15 % versus the krona. Assessing short term impact of USD impact the Q1 decline is extrapolated across the remaning 2025 quarters (i.e. -4% on topline YoY)

Giving an EPS of 2.5 SEK for the full year 2025. Which is probably worse than market expectations

That being said, even if you put the revenue growth to zero the comming years the stock would still be undervalue provided it growth will come in line with historical figures (to support the forward looking multiple of PE X20).

Meanwhile, investment in new projects (e.g. sleep-apnea screening) will keep margins under pressure. Even with flat revenue, the forward P/E (extrapolating Q1 results to the rest of the quarters) would remain in the 11–12× range—implying today’s valuation is still reasonable. Thanks to strong free-cash-flow, dividends should remain a reliable “pillow,” for further devaluations. Given the expected costs related to sleep-apnea screening I have adjusted the net-profit-margin assumption down to 23 % to account in the model.
Overall if the stock continues down to 25 SEK per share it may be worth while to buy.

Catalysts

Business Expansion Opportunities: The company can leverage its existing data and software to explore new business models—such as transforming its app into a medical device for sleep apnea, monetizing data, or licensing its software as a development kit.
Macro Trend: A growing societal focus on sleep’s importance supports increased market demand and provides an opportunity for accelerated growth.
Continued Historical Top-Line Growth: The company has consistently achieved a 10% annual top-line growth historically, and this trend is expected to continue.

Assumptions

Growth Trajectory: It is assumed that the company will maintain its historical 10% annual top-line growth. Assuming 10% revenue growth in model for upcoming 5 years. (lower than management guidance/financial goals which sets out a doubled revenue in 4-5 years).
Profit Margin Improvement: Recent quarters (2022–2024) show margins between 20–24%. As the business scales, net profit margins are expected to improve to a range of 25–30%. Assuming 25% profit margin in model.

Risks

Competitive Threats: The entry of major players like Apple or Samsung into the sleep market could displace the company.
Market Downturn: A continued decline in application downloads may dampen revenue growth and adversely affect overall performance.

Valuation

Reasonable PE Range in Five Years: Balancing the current undervaluation and the potential re-rating due to persistent growth and margin improvements, a PE multiple in the range of 20x to 25x appears reasonable in five years. E.g. the range of Garmin's PE ratio is 33.0, and the minimum PE ratio is 14.4. The average PE ratio is approximately 21.67. I am therefore assuming 20X PE in the valuation

To be on the lookout for in the upcoming Q-reports

Top-Line Growth: Monitor quarterly revenue figures to ensure they align with the projected 10% growth trajectory and any acceleration from new initiatives.
Margin Trends: Keep an eye on operating and net profit margins to confirm the expected improvement toward the 25–30% range.

Sleep Cycle's Revenue Set to Rise 10% with Strong Revenue Model

Shared on26 Apr 25Fair value Decreased 34%

Shared on21 Feb 25Fair value Increased 33%

Shared on26 Apr 25
Fair value Decreased 34%

Shared on21 Feb 25
Fair value Increased 33%