CPT Reimbursement Expansion Will Augment Future Dermatology Opportunities

Key Takeaways

• Expanded insurance coverage and new reimbursement codes are expected to greatly increase STRATA's eligible patient pool and revenue growth opportunities.
  
• Strong clinical evidence and physician-focused initiatives are driving deeper device adoption, supporting sustained growth and competitive advantage.
  
• Heavy reliance on a single platform, shrinking revenues, rising costs, and uncertain reimbursement timelines threaten long-term growth amid persistent international and competitive pressures.

Catalysts

A medical technology company, develops, commercializes, and markets products for the treatment of dermatologic conditions in the United States, China, Europe, the Middle East, Asia, Australia, South Africa, and Central and South America.

• The expansion of CPT reimbursement codes for XTRAC to cover 30+ skin conditions-including atopic dermatitis and vitiligo-from 2027 (potentially as early as 2026 via temporary G codes) is set to at least triple STRATA's addressable patient pool, which should drive a significant step-up in revenue growth as treatment eligibility and insurance coverage expand rapidly.
  
• STRATA is pursuing regulatory-driven reimbursement increases, with data-backed arguments that could boost average per-procedure payments from $160 to $230+; simultaneous growth in billable procedures and reimbursement rates would directly and materially improve both topline revenue and net margins beginning in 2026/2027.
  
• Ongoing direct-to-consumer campaigns and the Elevate 360 consulting platform are increasing physician utilization of existing devices, unlocking latent demand among diagnosed but untreated patients already in partner clinics, supporting recurring revenue and improved operating leverage.
  
• An aging population and increased awareness/diagnosis of chronic skin conditions are expanding the overall need for dermatological treatments and device-based solutions, providing a strong, long-term tailwind for STRATA's growth and helping offset potential market cyclicality-positively impacting multi-year revenue trends.
  
• Accumulating, high-quality clinical evidence demonstrating XTRAC's efficacy both as monotherapy and in combination with novel therapies (such as JAK inhibitors) strengthens physician adoption, supports premium pricing, and fortifies the company's competitive moat, positioning STRATA for long-term earnings growth as the standard of care evolves.

STRATA Skin Sciences Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming STRATA Skin Sciences's revenue will grow by 4.6% annually over the next 3 years.
• Analysts are not forecasting that STRATA Skin Sciences will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate STRATA Skin Sciences's profit margin will increase from -35.1% to the average US Medical Equipment industry of 12.5% in 3 years.
• If STRATA Skin Sciences's profit margin were to converge on the industry average, you could expect earnings to reach $4.7 million (and earnings per share of $1.17) by about September 2028, up from $-11.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.2x on those 2028 earnings, up from -0.7x today. This future PE is lower than the current PE for the US Medical Equipment industry at 28.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.58%, as per the Simply Wall St company report.

STRATA Skin Sciences Future Earnings Per Share Growth

Risks

• Persistent international trade tensions-specifically ongoing tariffs and distributor challenges in key markets like China and Korea-are causing significant declines (e.g., 15% YoY decline in international revenue for Q2 2025), and the lack of clarity on future tariff policy poses a sustained risk to international revenues, earnings, and overall growth.
  
• Domestic recurring revenues and equipment sales both declined year-over-year (domestic recurring billings down 2%, equipment revenues down 18%), indicating the potential for continued flat or negative growth in the company's core markets if utilization and new device placements do not accelerate, directly impacting topline revenue and profit margins.
  
• STRATA remains highly dependent on its excimer/phototherapy platform (primarily XTRAC), exposing the company to revenue concentration and obsolescence risk if competing technologies (biologics, at-home/personalized devices, non-device dermatology treatments) achieve greater adoption, potentially eroding recurring revenue and compressing margins.
  
• Increasing operating expenses, largely due to heavier spend on sales/marketing and ongoing litigation, have driven up cash burn (operating cash flow used of $1.9 million in Q2 2025, with only $6 million in cash remaining), raising the risk of future dilution or tighter access to capital and impacting long-term net earnings.
  
• The company's long-term growth story and margin improvement rely heavily on expanded CPT code reimbursement (not effective until at least January 2027, pending further regulatory review and possible delays); any setbacks or delays to expanded codes or reimbursement rates could suppress expected future revenue increases and earnings growth, while healthcare payors' focus on cost containment may limit code value expansion.

Valuation

• The analysts have a consensus price target of $8.0 for STRATA Skin Sciences 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 $12.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $37.6 million, earnings will come to $4.7 million, and it would be trading on a PE ratio of 9.2x, assuming you use a discount rate of 10.6%.
• Given the current share price of $1.88, the analyst price target of $8.0 is 76.5% 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.