Healthcare Cost Pressures Will Limit Adoption Yet Progress Will Emerge

Key Takeaways

• Premium pricing and cautious healthcare spending could slow adoption and restrict future revenue, especially as hospitals limit capital expenditures.
  
• Ongoing net losses and delayed diversification may require new financing, increasing dilution risk and putting pressure on future profit margins.
  
• Heavy dependence on dental segment, ongoing losses, weak R&D investment, and inconsistent international revenues collectively signal uncertain long-term growth and market diversification.

Catalysts

A biomedical technology company, patents, designs, develops, and commercializes diagnostic and therapeutic injection technologies, and devices for medical and dental use in the United States, China, and internationally.

• Although Milestone Scientific has secured Medicare reimbursement in multiple jurisdictions and is seeing early adoption of its CompuFlo Epidural system, ongoing cost containment pressures in healthcare and the premium pricing of its products could constrain wider adoption, potentially limiting future revenue growth if hospitals and clinics remain cautious about capital expenditures.
  
• While the company's international dental revenues surged and new distributors were brought online, the reliance on large, lumpy international orders and exposure to shifting trade policies and geopolitical turbulence could lead to unpredictable top-line performance and increased supply chain costs, weighing on gross margins and future profitability.
  
• Despite expanding into medical markets with new leadership and targeted strategies, Milestone Scientific's modest sales traction-currently with only a handful of clinics using the CompuFlo system-and the slow, data-dependent path to broader reimbursement indicate that cross-segment diversification and new revenue streams may take significantly longer to materialize, dampening near-term earnings visibility.
  
• Although regulatory trends are favoring safer, less invasive, and digital technologies, slow data collection, protracted reimbursement timelines, and the company's focus on a few jurisdictions before scaling may result in competitors outpacing Milestone Scientific with either faster approvals or more comprehensive product offerings, increasing the risk of market share erosion and muted revenue expansion.
  
• While management has taken steps to moderate operational expenses and the company maintains no long-term debt, persistent net losses and the need for ongoing investment in R&D and commercial teams could necessitate further equity or debt financing, heightening dilution risk and constraining improvement in net margins over the medium term.

Milestone Scientific Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Milestone Scientific compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Milestone Scientific's revenue will grow by 25.7% annually over the next 3 years.
• The bearish analysts are not forecasting that Milestone Scientific will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Milestone Scientific's profit margin will increase from -76.8% to the average US Medical Equipment industry of 12.4% in 3 years.
• If Milestone Scientific's profit margin were to converge on the industry average, you could expect earnings to reach $2.2 million (and earnings per share of $0.03) by about August 2028, up from $-7.0 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 55.5x on those 2028 earnings, up from -7.3x today. This future PE is greater than the current PE for the US Medical Equipment industry at 27.4x.
• Analysts expect the number of shares outstanding to grow by 0.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.52%, as per the Simply Wall St company report.

Milestone Scientific Future Earnings Per Share Growth

Risks

• Despite revenue growth, Milestone Scientific continues to operate at a substantial loss, with a $3.5 million loss from operations over the most recent six months, which poses ongoing risks to net margins, long-term earnings, and the potential for further shareholder dilution if additional capital raises become necessary.
  
• The vast majority of revenue growth is still coming from the dental segment, while medical segment adoption of the flagship CompuFlo system remains extremely slow, with only five to ten clinics using the product in the US, highlighting significant long-term risk to revenue diversification and total addressable market growth.
  
• Sustained low investment in research and development, as evidenced by a sharp drop in quarterly R&D expenses compared to the prior year, could undermine innovation and increase vulnerability to patent expirations, ultimately eroding gross margins and future earnings as competitive pressures mount.
  
• The company has acknowledged persistent lumpiness and unpredictability in international revenues due to timing of distributor orders and tariffs, making future quarterly revenue and gross profit streams volatile and potentially masking underlying weakness in consistent demand.
  
• With ongoing concentration in a handful of jurisdictions and heavy reliance on favorable reimbursement policies, delays or unfavorable changes in Medicare or private payer coverage, or failure to generate the clinical data needed to drive broader adoption, could significantly restrict long-term revenue expansion in both medical and dental markets.

Valuation

• The assumed bearish price target for Milestone Scientific is $1.25, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Milestone 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 $3.0, and the most bearish reporting a price target of just $1.25.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $18.0 million, earnings will come to $2.2 million, and it would be trading on a PE ratio of 55.5x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $0.65, the bearish analyst price target of $1.25 is 48.0% 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.