AI Capsule Endoscopy And Pancreatic Screening Will Transform Long Term Prospects

Catalysts

About CapsoVision

CapsoVision develops noninvasive, AI-enabled capsule endoscopy systems for gastrointestinal screening and diagnostics using panoramic imaging and a cloud-based workflow.

What are the underlying business or industry changes driving this perspective?

• Growing physician adoption of capsule endoscopy for small bowel screening, supported by more than 151,000 patients having used CapsoCam Plus and coverage under CPT code 91110, supports the potential for higher procedure volumes and revenue over time.
• The shift toward less invasive, patient friendly diagnostics, including remote ingestion and telemedicine workflows, aligns with CapsoVision's wire free, cloud based platform and can support higher utilization without a comparable rise in fixed costs, which may support operating leverage and margins.
• CapsoVision's in house AI capabilities, trained on a large, de-identified image database through CapsoCloud, are intended to improve diagnostic speed and accuracy, which could support premium pricing and procedure throughput, with potential benefits for revenue and gross margin.
• Pipeline expansion beyond the small bowel into colon and upper GI, including CapsoCam Colon and the pancreatic ductal adenocarcinoma program, uses the same call point and sales force, which can support incremental revenue growth while limiting selling expense growth and helping operating margins.
• The application for Breakthrough Device Designation in pancreatic cancer and the collaboration with Canon on next generation CMOS sensors position CapsoVision to participate in earlier cancer detection in areas with limited screening options. If adopted, this could expand the addressable market and support long term revenue and earnings growth.

Assumptions

This narrative explores a more optimistic perspective on CapsoVision compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming CapsoVision's revenue will grow by 80.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -172.4% today to 11.7% in 3 years time.
• The bullish analysts expect earnings to reach $9.0 million (and earnings per share of $0.17) by about January 2029, up from $-22.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 111.5x on those 2029 earnings, up from -12.7x today. This future PE is greater than the current PE for the US Medical Equipment industry at 31.3x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.69%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• CapsoVision is still early in its commercialization curve, with quarterly revenue of US$3.5 million and a net loss of US$7.9 million in Q3 2025. If procedure growth slows or reimbursement environments change over time, the company may not reach the scale needed to cover rising operating expenses, which would pressure earnings and cash flows.
• The business depends heavily on successful FDA clearances for AI enabled CapsoCam Plus, CapsoCam Colon and future pancreatic applications. The current delay to the AI 510(k) filing due to third party resource constraints shows how regulatory and execution setbacks can push out commercialization timelines, which could weigh on future revenue and delay any improvement in net margins.
• Over the long term, the model relies on cloud based AI and imaging leadership. Competing GI diagnostic technologies and capsule endoscopy players may also invest in AI and data, potentially eroding differentiation and pricing power, which could limit average selling prices and keep gross margin around or below the current 54% level.
• The company is investing heavily in R&D and partnerships, including US$1.6 million of R&D expenses in Q3 2025 related to the Canon sensor program and higher public company costs. If these programs do not translate into commercially successful products or broader adoption across colon and pancreatic indications, operating expenses may remain high relative to revenue, prolonging net losses.
• Even with an increased cash balance of US$17.8 million after the IPO, the combination of ongoing net losses and rising operating spend could eventually require additional capital. Any future equity financing at lower share prices or with faster share count growth than expected would dilute existing holders and could limit earnings per share growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for CapsoVision is $14.0, which represents up to two standard deviations above the consensus price target of $10.5. This valuation is based on what can be assumed as the expectations of CapsoVision's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $14.0, and the most bearish reporting a price target of just $7.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $76.9 million, earnings will come to $9.0 million, and it would be trading on a PE ratio of 111.5x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of $6.1, the analyst price target of $14.0 is 56.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.