Because the COVID-19 pandemic is far from over, the healthcare industry is expected to remain in the limelight of investor interest. Moreover, with technological advancements and government spending, the medical equipment/supplies market is expected to grow significantly in the coming months. However, we think its bleak fundamentals now make the shares of ReWalk (RWLK) less attractive than its peers in the medical equipment space, Cardiovascular Systems (NASDAQ:CSII), Varex (VREX), and Utah Medical (UTMD). So, let’s discuss these names.The healthcare industry has garnered enviable investor attention since the onset of the COVID-19 pandemic. And because new variants of the virus are still being identified, the healthcare sector should remain in the limelight. In addition, President Biden’s “Build Back Better” plan has provisions to boost the healthcare industry. The medical devices market is evolving rapidly with significant technological advancements and artificial intelligence (AI) integration and analysts expect the global medical devices market to grow at a 6.3% CAGR by 2027 to hit $625.30 billion.
Against this backdrop, the shares of medical devices maker ReWalk Robotics Ltd. (RWLK) are rallying on a Breakthrough Device Designation from the Food and Drug Administration for one of its devices. However, the company does not possess sufficient fundamental strength to justify the rally. RWLK’s revenue decreased 13.9% year-over-year to $1.44 million in its fiscal second quarter, ended June 30, while its non-GAAP net loss increased 7.7% from the same period last year to $2.87 million. Moreover, RWLK is trading at a stretched valuation. Its 16.48 forward Price/Sales multiple is currently trading 105.1% above the 8.03 industry average.
So we think small-cap medical equipment stocks Cardiovascular Systems, Inc. (CSII), Varex Imaging Corporation (NASDAQ:VREX), and Utah Medical Products, Inc. (UTMD) are better positioned to capitalize on the industry tailwinds.