We came across a bullish thesis on AVITA Medical, Inc. (RCEL) on Substack by Steve Wagner. In this article, we will summarize the bulls’ thesis on RCEL. AVITA Medical, Inc. (RCEL)’s share was trading at $10.22 as of Feb 19th.
A woman in a lab coat inspecting a vial of medicine for a dermatology drug candidate.
Avita Medical (RCEL) reported its Q4 2024 and full-year earnings, with strong revenue growth and expanding market penetration, yet ongoing commercialization efforts continue to weigh on profitability. The company’s commercial revenue for the quarter reached $18.4 million, up 30% year-over-year, driven by broader adoption of the RECELL GO system, particularly in trauma centers for full-thickness skin defects. Full-year revenue saw a similar 29% increase to $64 million, fueled by deeper penetration in burn centers and new product launches. Despite impressive top-line growth, operating expenses rose sharply, reaching $111.8 million for the year, largely due to increased sales and marketing investments, as Avita expanded its field teams and scaled commercial efforts. Net loss widened to $61.8 million ($2.39 per share) compared to $35.4 million ($1.40 per share) in 2023, reflecting the impact of rising costs, higher interest expenses, and the absence of one-time non-operating gains from the prior year.
The company’s gross margins remained robust at 85.8% for the year, slightly improving from 84.5% in 2023, thanks to production efficiencies and higher unit volumes. However, profitability remains a challenge as Avita continues investing heavily in commercialization. The RECELL GO product line has significantly expanded the company’s total addressable market from $500 million to $3.5 billion, yet the upfront costs associated with regulatory approvals, sales infrastructure, and clinical validation have outpaced revenue growth. A major bottleneck in the company’s path to profitability is the lack of insurance reimbursement for RECELL in treating vitiligo. While FDA-approved, the product has yet to generate commercial revenue due to limited insurance coverage. Avita anticipates that upcoming publications of post-market and health economics studies in early 2025 will be critical in supporting reimbursement efforts, which could unlock significant revenue potential.
Beyond vitiligo, Avita continues to expand its portfolio, securing FDA 510(k) clearance for Cohealyx, a collagen-based dermal matrix, and FDA approval for RECELL GO mini, designed for smaller wounds, both of which will launch in early 2025. Additionally, the company expects to secure a CE mark for RECELL GO in the European Union by mid-2025, opening doors for international expansion.
Avita’s outlook for 2025 is highly optimistic, with management guiding for full-year revenue of $100–106 million, implying growth of 55–65%. The company expects to reach free cash flow breakeven in the second half of the year and achieve GAAP profitability by Q4 2025, driven by continued revenue expansion, efficiency gains in manufacturing, and tighter cost controls. While these targets appear aggressive given current losses, Avita’s strategy is clearly focused on scaling its high-margin business while addressing operational inefficiencies. However, challenges remain, including ongoing cash burn, rising interest expenses from long-term debt under its OrbiMed credit agreement, and the need to balance growth investments with financial sustainability.
Despite these hurdles, Avita presents an attractive long-term opportunity. Its technology offers a differentiated approach to wound care and regenerative medicine, with a growing presence in burn and trauma centers. The company’s expanding portfolio and potential reimbursement approvals for vitiligo could significantly enhance its market positioning. While risks persist, particularly in achieving profitability within the projected timeframe, the stock’s recent surge following earnings suggests that investors recognize the company’s long-term potential. If Avita executes on its strategy and successfully navigates reimbursement challenges, the upside could be substantial, making it a compelling growth story in the medical technology space.
AVITA Medical, Inc. (RCEL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 4 hedge fund portfolios held RCEL at the end of the third quarter which was 3 in the previous quarter. While we acknowledge the risk and potential of RCEL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RCEL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.