Why I Am Passing On BrainsWay And Neuronetics

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I publication Richard Durant's screen connected BrainsWay (BWAY) (OTCPK:BRSYF) and David Zanoni's piece connected Neuronetics (STIM) and this sewage maine bullish connected nan niche transcranial magnetic stimulation (TMS) industry. TMS treatments impact shooting magnetic waves astatine circumstantial parts of nan encephalon to power activation aliases de-activation of definite functions. The curen methodology and business exemplary shared immoderate similarities to Novocure (NVCR), which is simply a ample alpha-generator I identified successful September 2022.

But some these companies are highly unprofitable presently and I americium hesitant to adhd much unprofitable consequence vulnerability to my portfolio aft Docebo (DCBO). So I looked astatine different listed competitors successful hunt of a amended opportunity.

In this article, I coming my comparative study of 3 listed TMS companies based connected institution filings and feedback of slump psychiatrist Dr Khaled Bowarshi, who has acquisition pinch each solutions. I dream this helps you amended understand BrainsWay and Neuronetics comparative to its competition:

  1. Israeli institution BrainsWay
  2. US institution Neuronetics
  3. Finnish institution Nexstim, which is listed successful nan Helsinki Stock Exchange

My findings lead maine to for illustration Nexstim for my portfolio for reasons discussed below:

Layman's Primer to Types of TMS

rTMS (repetitive transcranial magnetic stimulation) is nan modular type of TMS that involves transportation of magnetic pulses astir a wide region of nan encephalon for upto 45 minutes, and connected mean 19 minutes per session. The 'r' prefix stands for repetitive.

iTBS (intermittent theta-burst stimulation) uses theta-wave frequencies successful its treatment, which is nan aforesaid type of wave that nan encephalon uses to pass betwixt synapses. This makes nan curen much effective pinch faster sessions of only 3 minutes.

nTMS (navigated TMS) uses much precise targeting of circumstantial parts of nan encephalon for TMS treatment. The focused exertion present increases nan chances of successful curen of depression.

Business and Product Overview

BrainsWay is known for its dense R&D focus, possibly to an excessive extent. It utilizes thing called Hesel coils to stimulate wider and deeper stimulation albeit without circumstantial targeting. This makes it much prone to discomfort pinch higher seizure risks than emblematic TMS which has a narrower focal constituent of action. Furthermore, Dr Bowarshi notes that they person a inclination to "re-invent nan wheel" and walk copious amounts successful trading to pass technological superiority of their product.

Neuronetics' Neurostar is nan existent marketplace leader successful nan US, pinch astir 60% marketplace share, according to The Market for Bioelectronic Medicine. However, from an invention perspective, it seems to beryllium a comparative laggard arsenic they were precocious to nan iTBS manufacture development.

Nextstim's SmartFocus merchandise makes it nan only subordinate among nan 3 and 1 of 2 players among nan 7 cardinal vendors to person capabilities successful each awesome types of TMS - rTMS, iTBS and nTMS. This gives it nan champion scope for precision treatment. Nexstim's expertise successful navigation TMS comes from its expertise successful its main merchandise that is nan Navigated Brain Therapy (NBT) system, which has use-cases that widen into pre-surgical planning.

Scale of Business Comparison

Scale of Business Comparison

Scale of Business Comparison (Company Filings, Author's Analysis)

Neuronetics is 4-5x larger than BrainsWay and Nextstim successful position of marketplace capitalization but only 2-5x larger than BrainsWay and Nextstim from a standard of income perspective. This discrepancy suggests that to maine that location whitethorn beryllium a find re-rating premium that is yet to beryllium realized among nan smaller companies here.

Interestingly, nan accrued standard has not travel astatine nan use of amended profitability. Rather, nan smallest subordinate Nexstim is nan only subordinate that is marginally profitable astatine connected an LTM EBITDA basis.

Sales Growth Analysis

BrainsWay Sales maturation YoY

BrainsWay Sales maturation YoY (Company Filings, Author's Analysis)

Around 43% of BrainsWay's income comes from a fixed yearly interest lease exemplary for 2-5 years. This whitethorn beryllium why it had little sensitivity successful nan pandemic-stricken 2020 year, seeing only 2 quarters of antagonistic YoY maturation pinch greater resiliency than Neuronetics. Surprisingly however, it has seen a crisp 35.9% YoY and a 35.4% QoQ diminution successful 3QCY22, dissimilar its peers. In nan earnings call, guidance noted that customers kept pushing disconnected purchases:

...more than we expected, our business was impacted by inflationary and recessionary headwinds successful nan 3rd quarter.

I person trouble reconciling nan commentary pinch nan results crossed peers since akin commentary and results was not seen pinch Neuronetics aliases Nextstim. Also, BrainsWay's much protect leasing exemplary should successful mentation insulate it much from these kinds of headwinds.

This whitethorn show early indications of merchandise penetration failures, possibly to nan greater side-effects risks highlighted earlier based connected feedback from Dr Bowarshi.

Neuronetics Sales maturation YoY

Neuronetics Sales maturation YoY (Company Filings, Author's Analysis)

The diminution successful 2020 successful nan COVID quarters indicates nan precocious vulnerability of nan superior acquisition aliases usage-linked spends for Neuronetics. On a caller run-rate basis, Neuronetics is increasing astatine 15-19% YoY maturation rates. This is supra nan 8-yr 9.69% CAGR forecasted for nan manufacture by Vision Research Reports. However, for context, it is still little than nan 20%+ maturation profiles seen by billion-dollar marketplace headdress package companies.

Nexstim Sales maturation YoY

Nexstim Sales maturation YoY (Company Filings, Author's Analysis)

Unlike its peers, Nexstim saw minimal diminution during 2020 and has been seeing tremendous integrated income maturation successful since 2021. This is partially owed to a low-base effect arsenic nan institution only has $12 cardinal successful LTM revenues. However, it is besides owed to a much resilient business exemplary and wider use-cases. For example, Nexstim's NBS strategy is utilized successful investigation are often utilized successful objective research, which would not person correlated pinch nan quality of patients' session visitation and usage declines for nan TMS products.

The precocious maturation successful caller quarters times is owed to nickname of a $19 million licence statement to Magnus Medical for its NBT system. I judge this is simply a immense milestone for nan company, starring to incremental income uplift from $9 cardinal to $38 million. Importantly, these revenues person a virtually 100% pass-through effect connected margins arsenic they are based connected an first interest and a royalty.

Profitability Analysis

Brainsway EBITDA margin

BrainsWay EBITDA separator (Company Filings, Author's Analysis)

BrainsWay has a highly volatile separator profile. Combined pinch its unusually anemic income execution. Debt is not a interest arsenic it has a net cash position of $49.6 million. However, I deficiency assurance successful BrainsWay's sustainable early prospects.

Neuronetics EBITDA margin

Neuronetics EBITDA separator (Company Filings, Author's Analysis)

Neuronetics is unprofitable pinch -42.8% EBITDA margins. I judge it will still return galore quarters for it to scope profitability. Fortunately, nan company's nett rate position stands astatine $34 million.

Yet, for maturation vulnerability successful my portfolio, I overmuch for illustration 20%+ CAGR maturation businesses that are connected nan verge of turning sustainably profitable specified arsenic Docebo.

Nexstim EBITDA margin

Nexstim EBITDA separator (Company Filings, Author's Analysis)

The EBITDA separator inclination floor plan for Nexstim is what I for illustration to spot successful maturation businesses; steadily improving profitability without sacrificing connected growth, driven by operating leverage effects. With its caller licensing and royalty deal, I judge nan institution has sustainably crossed nan profitability line. Nexstim besides sits connected a nett rate position connected $3.2 cardinal truthful location are nary issues connected nan leverage consequence front.

Valuation Analysis

Valuation Analysis

Valuation Analysis (Company Filings, Capital IQ, Author's Analysis)

With a 2.0x LTM EV/Sales multiple, nan higher maturation and profitable Nexstim is trading astatine only a 11.1% to nan unprofitable marketplace leader. BrainsWay has a antagonistic EV owed to its rate equilibrium outsizing its marketplace capitalization. This makes it a heavy worth play, but without beardown activistic support, I judge it would beryllium difficult for number investors to return connected actions that impact for illustration taking control, liquidating nan business and releasing nan worth successful nan stock.

All things considered, I judge Nexstim is nan astir charismatic player.

Risk Considerations

As these are each mini companies, it is prudent to analyse rate burn, banal dilution and liquidity risks:

Cash burn

I cipher rate pain present by summing nan rate travel from operations and capex. I correspond rate pain pinch a antagonistic number successful nan charts below:

BrainsWay Cash Burn

BrainsWay Cash Burn (Company Filings, Author's Analysis)

Unsurprisingly, nan unprofitable quality of operations successful BrainsWay has contributed to an mean of $1.24 cardinal each quarter. I expect nan adjacent 4th to spot a larger rate pain arsenic nan steep driblet successful accounting revenues and EBITDA materialize into nan rate flows.

Given Brainway's $49.4 cardinal rate balance, nan institution has a maximum of 23 quarters till different money raise of indebtedness aliases equity is required, assuming past quarter's rate pain of $2.12 cardinal continues on.

Neuronetics Cash Burn

Neuronetics Cash Burn (Company Filings, Author's Analysis)

Here too, nan unprofitable quality of operations has contributed to an mean rate pain of $8.05 million. I expect this to proceed successful upcoming quarters arsenic profitability is obscurity successful sight.

Given Neuronetics' $73.7 cardinal rate balance, nan institution has a maximum of 10 quarters till different money raise of indebtedness aliases equity is required, assuming nan mean rate pain of $8.05 cardinal continues on.

Nexstim Cash Burn

Nexstim Cash Burn (Company Filings, Author's Analysis)

Nexstim is an outlier successful this regard. It has steadily reduced its rate pain complete clip and successful H1 CY22, it has eliminated each rate pain arsenic it has turned profitable. Given my expectations of sustained profitability owed to nan licensing woody use mentioned earlier, I expect rate travel procreation arsenic opposed to rate pain for Nexstim successful early quarters.

Stock Dilution

Fresh issuance of communal banal is simply a proxy for banal dilution.

BrainsWay Stock Dilution

BrainsWay Stock Dilution (Company Filings, Author's Analysis)

BrainsWay has had equity raises successful a lumpy manner. On an averaged basis, it has diluted $3.25 cardinal a 4th for nan past 13 quarters. Based connected existent marketplace capitalization terms, this corresponds to a 8.8% dilution.

Neuronetics Stock Dilution

Neuronetics Stock Dilution (Company Filings, Author's Analysis)

Neuronetics excessively has had equity raises successful a lumpy manner. On an averaged basis, it has diluted $6.50 cardinal a 4th for nan past 13 quarters. Based connected existent marketplace capitalization terms, this corresponds to a 4.4% dilution.

Nexstim Stock Dilution

Nexstim Stock Dilution (Company Filings, Author's Analysis)

Nexstim has raised equity successful a much phased manner. On an averaged basis, it has diluted $2.54 cardinal a 4th for nan past 14 quarters. Based connected existent marketplace capitalization terms, this corresponds to a 9.1% dilution. However, arsenic nan institution has turned profitable connected some an accounting net and rate travel conversion ground successful what I judge is simply a sustainable way, I deliberation location won't beryllium continued dilution successful nan stock. Note that nan past 2 half-year periods had overmuch little dilution compared to nan humanities norm, giving support for this trend.

Liquidity Considerations

Given nan mini and microcap quality of these stocks, liquidity becomes a very important consideration:

Seeking Alpha's BrainsWay ticker page information implies an mean regular measurement of simply $193,000. For Neuronetics, nan mean regular measurement is $241,570. Nexstim, being nan smallest banal listed only successful overseas exchanges has very bladed liquidity, pinch mean regular measurement of $25,000, according to Capital IQ data.

It is captious to guarantee that 1 uses limit orders and exercises patience to build up a position. Otherwise, you whitethorn unsettle and move nan market, moreover pinch an bid of a fewer 1000 dollars.


I for illustration nan manufacture and business maturation opportunities successful nan transcranial magnetic stimulation (TMS) manufacture and hence BrainsWay and Neuronetics. Indeed, BrainsWay seems to beryllium a heavy worth play arsenic its nett rate equilibrium exceeds its existent marketplace capitalization. But without nan backing of ample investors aliases akin catalyst, I don't spot a way to unlocking worth successful that stock.

In my view, a catalyst is highly important, particularly for unprofitable stocks and history proves this: contempt accordant 'Strong Buy' ratings connected BrainsWay since October 2019 by nan Seeking Alpha writer community, nan banal has fallen 77.72% since then, generating antagonistic alpha of 115.12%.

I judge Finnish institution Nexstim is much charismatic owed to its higher growth, already profitable operations and only 11.1% LTM EV/Sales valuation premium to Neuronetics. Here, I judge nan institution has a catalyst successful nan shape of its licensing woody pinch Magnus Medical.

Overall, if you're willing successful BrainsWay aliases Neuronetics, possibly you tin see Nexstim, which I judge is simply a much charismatic measurement to play nan increasing magnetic beat oriented encephalon therapies industry. If you take to spell on this route, retrieve to usage limit orders pinch dollops of patience successful getting your fills.

Note that Nexstim has nary progressive banal listing successful nan United States. Investors considering Nexstim for their portfolio would request to see nan Helsinki listing (if your agent offers that option).

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

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Track record: +3.85% annualized ALPHA pinch 57% LOWER RISK vs S&P500 utilizing a scalable, (mostly) long-only, no-leverage, (mostly) fully-invested, diversified world large-cap and mid-cap equity strategy.Follow maine for alpha-generating finance ideas. I would not beryllium an progressive investor and would not constitute astir my views if I didn't make alpha.Investment process:1. Sourcing finance ideas based connected a operation of top-down, bottom-up and momentum study on pinch an AI/ML exemplary to place nan ones astir primed for outperformance vs S&P500. The opportunity group includes almost 2000 and ETFs stocks crossed awesome banal markets successful nan world.2. Evaluating finance ideas by seeing if location is simply a brief, elemental and sensible finance thesis connected what tin make alpha vs nan marketplace complete nan adjacent fewer months and quarters3. Translating my communicative into numbers to spot if nan valuations support nan thesisI americium a generalist who invests successful immoderate assemblage truthful agelong arsenic I spot alpha potential. This attack is not for semipermanent bargain and clasp investing, though my publications will beryllium useful moreover to those investors. The emblematic holding play ranges betwixt a fewer months to a fewer quarters to moreover a fewer weeks. By having a shorter finance holding period, location is nan opportunity to maximize IRR of each banal pick, and nan wide portfolio.Seeking Alpha Ratings History:I highly urge reviewing nan ratings history for nan articles published by authors. This gives you different denotation of really often nan author's recommendations activity out, which is simply a proxy for genuine investing and alpha-generating skill.If reviewing my ratings history, I propose you look astatine really nan banal performed successful nan short to mean clip sky instantly aft article publication. This often corresponds to nan clip play wherever I would beryllium invested too. The champion measurement to way my portfolio holdings maneuvers and capacity is to travel maine connected Twitter and Substack:I stock my portfolio moves and people portfolio results connected my Twitter and Substack. I highly urge pursuing my societal media present to get these updates. This is because I often make moves that veer from nan first scheme I would person shared successful my published articles. This is done to perpetually optimize nan portfolio for early ALPHA generation.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, but whitethorn initiatiate a beneficial Long position done a acquisition of nan stock, aliases nan acquisition of telephone options aliases akin derivatives successful Nexstim complete nan adjacent 72 hours.

Editor: Naga

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