On Wednesday, Wolfe Research adjusted its price target for NeuroPace Inc (NASDAQ: NPCE), reducing it to $14.00 from the previous $16.00, while maintaining an Outperform rating on the stock. The firm's year-end 2024 target price is based on a valuation of approximately 5 times the company's projected revenue for 2025.
The rationale behind this target price is tied to the consistency with historical acquisition multiples in the medical technology sector and NeuroPace's expected revenue growth. The firm noted that a 5 times revenue multiple is not considered excessive, given that it aligns with the average takeover multiples for medical technology companies valued over $100 million since 2012.
NeuroPace's revenue growth for 2024 is forecasted to be around 5% higher than the average of approximately 30 small to mid-sized medical technology companies (SMID med tech). These comparables currently trade at an average of roughly 4 times their projected 2024 revenue.
Wolfe Research believes that NeuroPace's premium growth trajectory in the short term justifies a slightly higher valuation compared to its peers. The firm's outlook suggests confidence in the company's performance and its potential in the medical technology market.
In other recent news, Wells Fargo (NYSE:WFC) has maintained an Overweight rating on NeuroPace, holding steady with a price target of $20. This reaffirmation came on the heels of a meeting with NeuroPace's top executives during Wells Fargo's 2024 West Coast MedTech Tour. The company also projects a cash burn between $19 million to $20 million for the year 2024.
One significant development is the early completion of patient enrollment in the NAUTILUS study, which focuses on the treatment of Idiopathic Generalized Epilepsy (IGE). This announcement was made in late December. Additionally, NeuroPace has been actively broadening its pilot program activities for Project CARE.
The company's key objectives, as emphasized by its management, are to address the treatment gap for patients with drug-resistant epilepsy, a part of their strategic efforts to strengthen their standing in the medical technology market.
InvestingPro Insights
Adding to Wolfe Research's analysis, InvestingPro data indicates that NeuroPace Inc (NASDAQ: NPCE) has a market capitalization of $209.43 million and a negative P/E ratio of -6.1, reflecting the company's current lack of profitability. However, the company has seen a significant 42.07% revenue growth over the last twelve months as of Q1 2024, surpassing the average growth rate of approximately 30 small to mid-sized medical technology companies. This robust revenue growth is a key factor that may justify the premium valuation suggested by Wolfe Research.
InvestingPro Tips highlight that while NeuroPace has experienced a substantial return over the last year of 62.86%, the stock's price movements are quite volatile, with a six-month total return of -52.91%. Analysts do not anticipate the company will be profitable this year, which is consistent with the negative P/E ratio. Yet, the company's liquid assets exceed its short-term obligations, indicating a solid financial position in terms of liquidity. For investors seeking more detailed analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/NPCE.
These insights and metrics are crucial for investors considering Wolfe Research's adjusted price target and the potential of NeuroPace in the medical technology sector. The InvestingPro product provides a comprehensive suite of additional tips to further inform investment decisions.
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