AI Adoption And Digital MSK Demand Will Drive Strong Long Term Earnings Power

Catalysts

About Hinge Health

Hinge Health provides technology driven musculoskeletal care that automates and augments clinical delivery for employers and health plans.

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

• Continued shift of employers and health plans toward digital, outcomes based MSK solutions is driving demand for Hinge Health's platform, which may sustain elevated revenue growth and support further expansion in calculated billings.
• Rapid adoption of AI across care delivery and internal operations, including Robin and engineering productivity tools, is increasing clinician throughput and product velocity. This trend may structurally improve operating leverage and net margins over time.
• Rising health care costs and MSK remaining a top spend category are pushing employers and payers to prioritize proven ROI solutions. This dynamic may reinforce Hinge Health's pricing power, support stable or improving ASP and enhance earnings durability.
• Expansion of integrated digital and in person offerings through HingeSelect and broader provider network build out positions the company to pursue a larger share of MSK and adjacent care pathways, potentially increasing lives under contract and long term revenue per client.
• Growing traction with jumbo employers, federal programs and fully insured health plan books reflects the model at scale, which may support higher enrollment yield, more predictable revenue and rising free cash flow generation.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Hinge Health's revenue will grow by 21.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -80.3% today to 8.9% in 3 years time.
• Analysts expect earnings to reach $85.8 million (and earnings per share of $0.78) by about December 2028, up from $-429.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $363.9 million in earnings, and the most bearish expecting $43.2 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 88.4x on those 2028 earnings, up from -9.1x today. This future PE is greater than the current PE for the US Healthcare industry at 23.7x.
• 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 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long-term success of Hinge Health depends on sustained employer and health plan enthusiasm for digital MSK solutions. If rising benefit costs force customers to aggressively cut or rotate point solutions, demand for Hinge Health could slow, reducing revenue growth and pressuring earnings.
• While AI driven automation is currently expanding gross margins and operating margins, any regulatory pushback, data privacy incidents or clinical missteps involving tools like Robin or movement analysis could slow AI deployment, increase compliance costs and reverse margin gains, weakening net margins and free cash flow.
• The strategy increasingly relies on health plan and federal channels. If Medicare Advantage, federal programs or large insurers face sustained reimbursement pressure or policy changes, they may renegotiate pricing or reduce covered services, which would weigh on average selling price, yield and ultimately revenue.
• Building and scaling HingeSelect as a two sided in person provider marketplace is complex. If the company fails to achieve durable quality and cost advantages versus existing insurer networks, the initiative could add fixed costs without corresponding uptake, diluting operating margin and constraining earnings growth.
• The current trajectory assumes Hinge Health can expand beyond musculoskeletal and physical therapy into other care areas. If new products fail to gain traction or encounter stronger incumbents, the company could over invest in low return initiatives, leading to rising operating expenses that erode net margins and limit future earnings expansion.

Valuation

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

• The analysts have a consensus price target of $64.29 for Hinge Health based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $72.0, and the most bearish reporting a price target of just $48.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $960.4 million, earnings will come to $85.8 million, and it would be trading on a PE ratio of 88.4x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $49.79, the analyst price target of $64.29 is 22.5% 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.