Competitive Regulatory Risks Will Hamper Healthcare Yet Value Will Rebound

Key Takeaways

• Heavy reliance on hormone therapies and regulatory scrutiny could threaten long-term revenue stability and market share despite growth in supplements and provider network.
  
• Operational challenges, including rising expenses and digital rollout issues, may offset profit margin gains and hinder future clinic and revenue growth.
  
• Persistent execution and revenue growth challenges, coupled with rising costs and dependence on core therapies, threaten Biote's profitability and long-term earnings outlook.

Catalysts

Operates in practice-building business within the hormone optimization space.

• Although Biote continues to benefit from the aging population and the rising demand for personalized healthcare, ongoing softness in procedure volume, driven by a slowdown in new clinic additions and competitive pressures, may limit near-term revenue growth and offset these long-term tailwinds.
  
• While expansion of Biote's provider network and e-commerce-driven supplement sales demonstrate the potential to grow top-line revenue, the firm's heavy reliance on a single suite of hormone therapies-amid increasing regulatory scrutiny of elective medical interventions-could undermine both revenue visibility and long-term market share.
  
• Despite improvements in gross profit margin from vertical integration of manufacturing, escalating sales and general administrative expenses to support provider expansion and sales team restructuring threaten to erode net margin gains and may delay the realization of operating leverage.
  
• Although advancements in digital health engagement and clinical decision support software are intended to accelerate adoption and improve patient outcomes, the recent disruption from software rollout slowed new clinic starts, and any future operational missteps could hamper Biote's ability to capture the benefits of broader digital health trends, directly affecting procedure volumes and future earnings.
  
• While Biote's recurring revenue model provides some stability, the potential for demographic shifts leading to slower growth in elective, cash-pay health services or a rise in skepticism toward wellness interventions might dampen patient demand over time, presenting an ongoing risk to both revenue consistency and long-term EBITDA growth.

biote Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on biote compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming biote's revenue will grow by 9.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 10.6% today to 8.8% in 3 years time.
• The bearish analysts expect earnings to reach $23.0 million (and earnings per share of $0.71) by about July 2028, up from $21.0 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 10.7x on those 2028 earnings, up from 6.2x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 18.1x.
• Analysts expect the number of shares outstanding to grow by 1.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

biote Future Earnings Per Share Growth

Risks

• The company is experiencing ongoing competitive pressures with a slowdown in new clinic additions and a minor decrease in procedure volumes along with select reductions in average selling prices, all of which could constrain procedure revenue and place ongoing pressure on top-line growth.
  
• Biote's recent performance has been inconsistent, with commercial execution and growth falling short of management's and investors' expectations, raising concerns about the company's ability to deliver reliable earnings improvement in the long term.
  
• The company faces rising selling, general, and administrative expenses resulting from increased investments in sales and marketing to drive new growth, which could erode net margins and limit future profitability if revenue growth does not accelerate as planned.
  
• Risks remain around execution of the strategic restructuring and the effectiveness of the expanded sales force, as management has highlighted uncertainty regarding the timing of improvements in new clinic growth and procedure revenue, meaning potential delays could impact both revenue and EBITDA targets for upcoming years.
  
• Despite recent product and channel expansion, Biote remains heavily exposed to the success of its core hormone therapy business and is vulnerable to industry-wide risks such as increased scrutiny over hormone-based therapies or a shift in physician guidelines, any of which could materially reduce revenue and earnings if mainstream adoption slows.

Valuation

• The assumed bearish price target for biote is $4.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of biote'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 $8.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $261.4 million, earnings will come to $23.0 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 6.4%.
• Given the current share price of $4.12, the bearish analyst price target of $4.0 is 3.0% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
• 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.