On Wednesday, Needham maintained a Buy rating on Paragon 28, Inc (NYSE:FNA) shares and increased its price target to $13.00 from the previous $11.00. The firm's decision follows Paragon 28's third-quarter financial results, which surpassed consensus expectations. The company reported a revenue growth slowdown to 18% in constant currency for the third quarter of 2024, slightly down from the 20% growth seen in the previous quarter.
Despite a slower growth rate, Paragon 28's management highlighted that procedure volumes had leveled out after a fluctuating start to the quarter.
The company demonstrated notable improvements in its financial health, with its operating margin soaring by 970 basis points year-over-year and EBITDA margin increasing by 600 basis points in the same period. This quarter marked a significant milestone for Paragon 28 as it achieved positive EBITDA for the first time since its initial public offering.
Further financial achievements include a considerable enhancement in cash flow, as evidenced by the company's free cash flow in the third quarter of 2024, which was a negative $6.3 million. This figure represents a 70% improvement compared to the negative $20.7 million free cash flow in the third quarter of 2023. Paragon 28's management has reaffirmed its financial targets, aiming to reach positive EBITDA in 2025 and positive free cash flow in 2026.
Needham's revised price target is attributed to an increased sales estimate for the year 2025 and Paragon 28's demonstrated progress in profitability and cash flow management. The firm's outlook for the company remains positive as it continues on its path to achieving its financial goals.
In other recent news, Paragon 28 reported a significant increase in its Q2 2024 financial performance. Global revenue reached $61 million, marking a 19.6% increase, while US revenue rose by 17.6% to $49.7 million. Furthermore, the company expanded its surgeon customer base by 11% and achieved international growth in the UK, Australia, South Africa, and Spain.
Paragon 28 also announced the departure of Erik Mickelson from his role as Chief Accounting Officer. The company clarified that this transition is not due to any disputes or concerns regarding financial reporting or accounting practices. Mickelson will assist with transitional services until October 1, 2024, and may provide accounting-related consultancy until November 30, 2024.
In addition, the company launched the R3FLEX™ Stabilization System, designed to improve the treatment of ankle syndesmosis injuries. This innovative system aims to reduce the risk of arthritis, a common complication following such injuries, and offers surgeons a precise way to adjust and visualize tension during the repair process.
Lastly, Paragon 28 has provided a narrowed full-year 2024 revenue guidance of $249 million to $255 million. The company is implementing cost reduction strategies and aims for EBITDA positivity by 2025 and cash flow positivity by 2026. These are the latest developments in the company's ongoing operations.
InvestingPro Insights
Recent InvestingPro data adds context to Needham's bullish stance on Paragon 28 (NYSE:FNA). The company's market cap stands at $626.57 million, with a strong revenue growth of 17.39% over the last twelve months as of Q2 2024. This aligns with the growth slowdown mentioned in the article, while still showing significant expansion.
InvestingPro Tips highlight that Paragon 28 operates with a moderate level of debt and its liquid assets exceed short-term obligations, which supports the company's improving financial health noted in the article. The strong return over the last month, with a 31.12% price total return, reflects positive investor sentiment following the company's Q3 results and progress towards profitability.
It's worth noting that InvestingPro offers 6 additional tips for Paragon 28, providing investors with a more comprehensive analysis of the company's financial position and market performance.
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