Bitcoin Volatility Will Erode Margins While SaaS Will Offer Hope

Key Takeaways

• Heavy dependence on a single device and slow product diversification exposes Semler to competitive and technological risks that may undermine future revenue.
  
• Regulatory pressures, limited international expansion, and intensifying competition threaten margin growth and the ability to capitalize on healthcare market trends.
  
• Heavy reliance on Bitcoin and a single healthcare product heightens exposure to regulatory, market, and financial risks, threatening future revenue stability and profitability.

Catalysts

Provides technology solutions to enhance the clinical effectiveness and efficiency of healthcare providers in the United States.

• While the growing prevalence of chronic diseases and the shift toward value-based care should support sustained demand for Semler's diagnostic tools, ongoing downward pressure on U.S. healthcare reimbursement rates-as recently seen with the 2024 CMS rate change-may erode pricing power and limit revenue growth in the core health care business.
  
• Despite significant long-term opportunity from expanding adoption of digital health and remote monitoring solutions, heavy reliance on the QuantaFlo device and limited success in diversifying the product portfolio may expose Semler to technological obsolescence, undermining future revenue streams and operating margins.
  
• While the scalability of Semler's software
• and device-based healthcare model has the potential for margin expansion, increasing competition-particularly from larger tech-enabled firms leveraging AI-driven diagnostics-could put downward pressure on net margins and constrain top-line growth over the long run.
  
• Although industry trends favor portable, easy-to-use diagnostic devices, Semler's limited international presence reduces its ability to capitalize on secular shifts toward decentralized and home-based care globally, restricting long-term earnings potential.
  
• While ongoing investments in new SaaS-based cardiac technologies (CardioVanta) could create new, high-margin revenue streams to support earnings, heightened regulatory scrutiny and the cost and uncertainty of regulatory approval may delay or reduce their ultimate financial impact.

Semler Scientific Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Semler Scientific compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Semler Scientific's revenue will decrease by 10.8% annually over the next 3 years.
• The bearish analysts are not forecasting that Semler Scientific will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Semler Scientific's profit margin will increase from 86.2% to the average US Medical Equipment industry of 12.3% in 3 years.
• If Semler Scientific's profit margin were to converge on the industry average, you could expect earnings to reach $3.8 million (and earnings per share of $0.21) by about August 2028, down from $37.0 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 bearish analyst cohort, the company would need to trade at a PE ratio of 359.7x on those 2028 earnings, up from 14.4x today. This future PE is greater than the current PE for the US Medical Equipment industry at 28.0x.
• 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 7.87%, as per the Simply Wall St company report.

Semler Scientific Future Earnings Per Share Growth

Risks

• The company's increasing reliance on its Bitcoin treasury strategy exposes its balance sheet and earnings to high volatility and the risk of substantial losses if Bitcoin experiences a prolonged price decline, potentially resulting in steep drops in reported net income and possible erosion of shareholder equity.
  
• Semler's core healthcare revenues declined year-over-year due to changes in CMS reimbursement rates for positive PAD patients and decreased device usage at some customers, indicating sensitivity to regulatory and policy shifts that could further compress future revenues and limit cash flow available for reinvestment or Bitcoin acquisition.
  
• Heavy dependence on a single product (QuantaFlo) in its traditional business makes Semler vulnerable to technological disruption and market maturity in the U.S., raising the risk of slower revenue growth and margin pressure if product innovation or expansion efforts fail.
  
• The aggressive use of leverage and frequent equity issuance to purchase additional Bitcoin creates long-term dilution risks and may increase financial leverage to unsustainable levels, impacting return on equity and potentially depressing future earnings per share if Bitcoin underperforms or market sentiment shifts.
  
• Ongoing legal and regulatory exposure, including the pending Department of Justice settlement and the ever-changing landscape of healthcare and digital asset regulations, poses the potential for increased compliance and legal costs, which could reduce profitability and impair net margins over time.

Valuation

• The assumed bearish price target for Semler Scientific is $60.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Semler Scientific's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $101.0, and the most bearish reporting a price target of just $60.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $30.5 million, earnings will come to $3.8 million, and it would be trading on a PE ratio of 359.7x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $36.13, the bearish analyst price target of $60.0 is 39.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.