Tactile Systems Technology,
Inc. (TCMD, $32.52): “Tactile’s Good Tactic”
By: Jack Senft, AIM student at Marquette
University
Disclosure: The AIM Equity
Fund currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
•
Tactile Systems Technology, Inc. (NASDAQ:TCMD)
is a medical technology company that focuses on treating chronic diseases in a
home environment. With improving patient
outcomes, Tactile is still able to control rising healthcare costs.
•
Recent Flexitouch feedback has come above expectations with it’s full-lunch
expected to come by the end of the first quarter 2018.
•
Tactile shows salesforce expansion of 20% over the 2017 year.
•
2018 guidance has been updated to over 20% revenue growth, which is in line
with Street expectations.
•
Increasing product presence among the 4,500 lymphedema facilities in the US.
Key points: Flexitouch Plus, Tactile’s head and neck
lymphedema platform, is their top revenue producer that showed strong positive
feedback, especially for improved pressure controls. Since this is the treatment for lipedema,
patients are very sensitive pressure, meaning this platform has a gentler
setting as opposed to competitors. Due
to not being fully launched until May, alow penetration is normal and Tactile
has begun to combat this by the increase in sales representatives.
In
the 2017 fiscal year, management hired 160 new sales representatives, equating
to 28% growth from the previous year.
With an original expectation of growing the staff at around 20%, this
increase in reps could improve productivity and product penetration. Increasing
by this volume demonstrates that Tactile will be able to maintain relationships
with each lymphedema facility.
Flexitouch,
being 93% of Tactile’s total revenue continues to demonstrate growth potential,
along with strong gross margins. Management
stated that physician awareness should increase in the near term due to a
dedicated sales resources team, and through word of mouth. With this in mind, management has also
increased revenue guidance to 22% growth, as opposed to their old estimates of
only around 20%. Even though this is in
line with the Street, this seems to be a conservative estimate where a
potential upside is still possible.
In
the United States alone there are about 4,500 high-diagnosing lymphedema
facilities, where Tactile penetrates about 40% of those. With an estimated 10,000 physicians in these
facilities, Tactile has a great opportunity to increase Flexitouch awareness,
especially through a larger salesforce. Not only this, but Tactile is looking to go
deeper into these facilities with more than one high-diagnosing physicians,
while also trying to add their products in new facilities.
What has the stock done
lately?
Over
the past month, Tactile has seen almost a $4.00 increase in per share
value. As this might not seem like a lot
per share, this is a 13.88% increase, which is outperforming the market. Being around the low $30 range, Tactile did
see about a 10% decrease that was quickly corrected. An increase in the stock price should be
expected with the full launch of Flexitouch, given the positive feedback.
Past Year Performance: TCMD has increased 63.75% in value over the
past year, and the stock should still continue to increase in value. Peaking in
around September at $36.79, TCMD has a beta of that close to 1. As there
appears to be only one major correction during this period, TCMD is on track to
break the 52-week high with new catalysts still coming.
My Takeaway
Flexitouch
has a full-launch that is quickly approaching and Tactile is in a great
position for large returns, while minimizing risk. Seeing the positive feedback
and the increase in salesforce, Tactile is gearing up for the launch. With management’s increase in guidance for
revenue, TCMD maintains a buy status, potentially shooting past their 52-week
high especially with the upcoming catalysts.
