RxSight: Great Business Model, Stretched Valuations (NASDAQ:RXST)

Today, we put RxSight, Inc. (NASDAQ:RXST) in the spotlight again for the first time here in 2024. The stock of this ocular medical device and product concern has more than quadrupled since the end of 2022. Is there still gas to drive this rally, or is profit taking more likely in the months ahead? An analysis follows below.

RxSight, Inc. bills itself as “an ophthalmic medical device company dedicated to providing high-quality customized vision to patients following cataract surgery.” RxSight has a “razor and razor blade” business model. The company sells Light Delivery Devices which can then be used to adjust and optimize its Light Adjustable Lenses following cataract surgeries. The stock currently trades around fifty dollars a share and has an approximate market capitalization of approximately $2.1 billion.

Recent Results:

RxSight posted Q1 numbers on May 6th. The company delivered a non-GAAP loss of 12 cents a share, which was seven cents a share better than expected. Gross profit margins increased to 70% compared with 59% from the prior period a year ago. The net loss of $9.1 million for the quarter was better than the $13.2 million loss in 1Q2023.

Revenues rose just over 68% on a year-over-year basis to $29.5 million, some $2 million north of the consensus. The company sold 66 Light Delivery Devices during the quarter. This was 18% above the same period a year ago, and RxSight had an installed base of 732 Light Delivery Devices at the end of the quarter. These were used to do 20,218 procedures during the quarter, an impressive 92% rise from 1Q2023.

Management provided FY2024 guidance calling for gross margins to be in the 68% to 70% range for this fiscal year. Leadership also bumped up sales guidance slightly to $132 million to $137 million, representing 51% growth over FY2023 at its midpoint. Previous guidance was for $128 million to $135 million. The company also increased its operating expense guidance slightly to between $126 million to $130 million.

Analyst Commentary & Balance Sheet:

The company appears to be universally loved in the analyst community. Since first quarter results hit the wires, eight analyst firms, including Wells Fargo, Needham, and JPMorgan have reissued Buy/Outperform ratings on the stock. Seven of these had upward price target revisions. New price targets proffered range from $68 to $75 a share.

The company ended the first quarter with approximately $125 million worth of cash and marketable securities on its balance sheet after posting a net loss of just over $9.1 million. The company raised approximately $100 million via a secondary offering a few days after reporting Q1 results. Insiders have been frequent and consistent sellers of the stock since the summer of 2023. So far in 2024, they have sold more than $18 million worth of shares collectively so far this year, including nearly $1.1 million in the month of July so far. Just under four percent of the outstanding float is currently held short.

Conclusion:

RxSight, Inc. lost $1.41 share on just over $89 million in sales in FY2023. The current analyst firm consensus has losses dropping to 75 cents a share as sales rise to $135 million. They project 49 cents a share of losses in FY2025 on 33% sales growth.

The company has built a better “mousetrap” for its market, and RxSight should have years of solid revenue growth, that will decelerate percentage wise as it grows over larger numbers. The problem for recommending these shares after their considerable ascent is valuation. The company is unlikely to be profitable until FY2027 at its current pace. Hopefully, the recent capital raise is the last one RxSight needs to do until it becomes break even.

That said, the stock trades at more than 15 times forward sales, making it vulnerable to profit taking, which seems to be what is happening in trading on Wednesday morning (July 10th). Insiders certainly haven’t been shy about taking some chips off the table here in 2024. Growth has slowed some from the torrid pace when we last looked at this company in 2023. It also should be noted that when that article came out in October, the analyst consensus was the company would lose $1.44 a share in FY2024, compared with the current estimate of just 75 cents a share.

Given the current valuations, those loss estimates will probably need to continue to improve significantly for the stock to go higher from here. I am passing on any investment recommendation around RxSight, Inc. at these trading levels as it just remains “too rich for my blood” despite solid execution.