Mounting Sleep Apnea Costs Will Stall Progress Yet Spur Renewal

Key Takeaways

• Rising healthcare cost pressures, regulatory hurdles, and competition from lower-cost alternatives threaten Inspire’s revenue growth, pricing power, and international expansion opportunities.
  
• Heavy reliance on the flagship device exposes Inspire to revenue risks if alternative sleep apnea treatments gain traction or device outcomes disappoint stakeholders.
  
• Heavy reliance on one product and challenging reimbursement dynamics expose the company to margin pressure, earnings volatility, and risk from delayed adoption or regulatory hurdles globally.

Catalysts

A medical technology company, focuses on the development and commercialization of minimally invasive solutions for patients with obstructive sleep apnea (OSA) in the United States and internationally.

• Although Inspire Medical Systems benefits from a growing global need for sleep apnea solutions and strong patient demand, the company faces mounting cost pressures and tighter reimbursement constraints in healthcare systems internationally. This could slow reimbursement expansion and limit revenue growth over the longer term, especially in new geographies.
  
• While the full launch of the Inspire V system with improved features positions the company for higher adoption rates and supports current positive net margin trends, increasing regulatory scrutiny and lengthening device approval timelines may delay international rollout and new product introductions, slowing projected future growth and margin expansion.
  
• Inspire’s continued investments in product innovation and digital tools could bolster its future differentiation; however, its heavy dependency on the success of its flagship device exposes the company to significant revenue volatility if alternative non-surgical or low-cost treatments for sleep apnea gain traction or if negative clinical outcomes impact confidence among providers and patients.
  
• Even as broader awareness and diagnosis of sleep apnea expands the potential patient pool, heightened competition from lower-cost alternatives and telemedicine-based management solutions may erode Inspire's pricing power and reduce average selling prices, risking long-term revenue growth and margin compression.
  
• Despite progress in building partnerships with hospitals and sleep centers to drive adoption and reimbursement approvals, industry-wide pushes for price transparency and value-based care could increase pressure on device pricing and tie reimbursement more tightly to real-world outcomes, which may ultimately constrain earnings if Inspire’s device does not consistently demonstrate superior cost-effectiveness compared to less expensive treatments.

Inspire Medical Systems Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Inspire Medical Systems compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Inspire Medical Systems's revenue will grow by 13.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.9% today to 10.2% in 3 years time.
• The bearish analysts expect earnings to reach $125.3 million (and earnings per share of $3.87) by about May 2028, up from $66.5 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 47.0x on those 2028 earnings, down from 69.4x today. This future PE is greater than the current PE for the US Medical Equipment industry at 30.3x.
• Analysts expect the number of shares outstanding to decline by 0.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.94%, as per the Simply Wall St company report.

Inspire Medical Systems Future Earnings Per Share Growth

Risks

• Inspire Medical Systems’ heavy reliance on a single flagship product (the Inspire device) and minimal diversification leaves it vulnerable to market, clinical, or regulatory setbacks, which could drive instability in revenue and net earnings over time.
  
• Secular and regulatory pressures—including declining reimbursement rates, increased cost constraints among payers globally, and lower Medicare professional fees with the new CPT code—risk dampening future revenue growth and pressuring net margins as price sensitivity increases.
  
• The company’s projected back-end loaded revenue guidance for 2025 hinges on rapid Inspire V center conversion and patient throughput, so any delays in training, inventory transition, or physician adoption could create significant volatility and risk shortfalls in annual revenues and earnings.
  
• Increased operating expenses from stepped-up marketing, medical education, and hiring to support the full launch may outpace revenue if adoption rates lag or if insurance/payer dynamics shift unfavorably, thereby constraining future net margins and profit growth.
  
• International expansion remains a key growth pillar but has recently experienced a decline in year-over-year revenues, and longer regulatory timelines or reimbursement hurdles in Europe and Asia could further inhibit future revenue diversification and earnings growth.

Valuation

• The assumed bearish price target for Inspire Medical Systems is $172.22, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Inspire Medical Systems'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 $270.0, and the most bearish reporting a price target of just $172.22.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $125.3 million, and it would be trading on a PE ratio of 47.0x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $156.5, the bearish analyst price target of $172.22 is 9.1% 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.