Somnomed Limited (ASX: SOM) shares soared 11% today following a positive quarterly update, which it said was characterised by "outstanding growth performance" with 30.1% revenue growth year over year.
Who is SomnoMed?
SomnoMed is a $115 million company that develops a mouthguard-like device for the treatment of mild to moderate Obstructed Sleep Apnoea (OSA) and related respiratory disorders. Dubbed SomnoDent, the device is simple and convenient for patients.
The Continuous Open Airway Therapy (COAT) device is worn during sleep. Independent studies have verified that 91% of patients using SomnoDent reported an improvement in sleep quality.
SomnoDent devices stand in competition to Continuous Positive Airway Pressure (CPAP) alternatives offered by health care giants such as ResMed Inc. (CHESS) (ASX: RMD) and Fisher & Paykel Healthcare Corp Ltd (ASX:FPH). However, SomnoDent is far less intrusive than CPAP masks, while also costing less.
According to SomnoMed, various studies have suggested compliance rates for patients prescribed a CPAP machine to treat OSA drop to 50% or below within two years. Conversely, 88% of patients report regular use of SomnoDent. The device lasts between three and five years and comes with a three-year manufacturing warranty against defects.
Strong performer
During its most recent quarter, SomnoMed's global sales grew 30.1% to $9.64 million, with device sales climbing 32% to $8.12 million. Europe sales grew 18.3% while APAC/Japan sales were 14.3% higher year over year.
However, the group's key growth market is in the USA. "Q1 has set a new record growth rate for a quarter in the US, with 37.8% above the same quarter last year, which is very pleasing," Dr. Peter Neustadt, Executive Chairman of SomnoMed said.
Pleasingly, despite the relatively cheap price of its products, SomnoMed consistently generates a gross profit margin between 55% and 60%.
Buy, Hold or Sell?
While I'm not prepared to say it's a better investment, I think investors who believe ResMed and Fisher & Paykel are worthwhile investments for the long-term should strongly consider adding shares of SomnoMed to their portfolio (I know I am!). Moreover, although its shares don't appear a clear cut bargain opportunity using conventional metrics, I think there is decent value in the company's current market price.
