Look For Irhythm Technologies Inc (IRTC) To Groove Higher

There’s still a chance to profit from recent IPO Irhythm Technologies Inc (NASDAQ:IRTC). On November 14th, IRTC’s IPO quiet period will expire and the stock’s underwriters will be allowed to release reports. It’s likely that these reports will be positive and push shares higher in the short term. Investors can ride shares higher by establishing a long position now and selling shares after the reports are released on November 15th.

iRhythm Technologies’ (Pending:IRTC) is up approximately 50% from its IPO price. The company went public on Oct. 19, jumped 53.2% on its first day of trading, and has stayed well above its initial price since, currently at $23.08.

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Since the company went public, the SEC’s quiet period rules have prevented the firm’s underwriters from releasing any reports or recommendations. The 25-day IPO quiet period will expire on 11.14.2016 allowing its IPO underwriters to release research recommendations for the first time since the company went public.

Previous research has found support for above-market returns in the days surrounding a company’s IPO quiet period expiration. Our own firm has revisited this strategy and found similar results. We note that implementing a trading strategy of purchasing shares 5 days prior to the quiet period expiration and selling 2 days after event resulted in above-market returns of over 2%. The return was higher for a sample that excluded banks and REITS (approximately 2.7%).

Business Overview

A digital healthcare company, Irhythm Technologies Inc (NASDAQ:IRTC) aims to redefine the way that first-line responders clinically diagnose cardiac arrhythmias. The company combines its wearable bio-sensing technology with machine-learning capabilities and cloud-based data analytics. The company estimates the size of the U.S. ambulatory cardiac monitoring market to be approximately $1.4 billion and aims to become one of the leading providers in the industry. Since the company received clearance by the U.S. Food and Drug Administration in 2009, it has served over 500,000 patients.

The company’s platform, the ZIO Service, combines an unobtrusive, easy-to-wear sensor, called the ZIO Patch, that can work for up to two weeks. The ZIO Patch features powerful proprietary algorithms that distill data from heartbeats, allowing physicians to more quickly diagnose arrhythmias and thus help to avoid more serious medical events, including stroke. Compared to competitors, IRTC’s device is smaller and lighter and allows for longer monitoring time.

Founded in Delaware on Sept. 14, 2006, the San Francisco, California-based company is also in charge of additional commercial facilities and operations in Houston, Texas and Lincolnshire, Illinois. The company manufactures its devices in Cypress, California.

Management Team Overview

Since July 2012, Kevin King has served as Chief Executive Officer, President and a member of the board of directors. Mr. King has nearly 30 years of experience in leadership roles in the IT and healthcare industries. Previously, he was a Director, Chief Executive Officer and President of Affymetrix, Inc. (NASDAQ:AFFX), an innovator of technology in the genetic analysis field. Prior to that, he served as Chief Executive Officer and President of Thomson Healthcare, an information services business focused on healthcare-related businesses. Mr. King held leadership roles in business development, marketing and sales during the first stages of his career at HP’s Medical Products Group. Mr. King has an M.B.A. from New Hampshire College and a B.A. in Economics and Biology from the University of Massachusetts.

As we described in our IPO preview, Matthew Garrett has served as CFO since January 2013. Prior to joining the company, Mr. Garrett served as Chief Financial Officer of Navigenics, Inc., Director of Business Development at Corventis Inc., and Vice President of Finance, Chief Accounting Officer and Treasurer for Cogentus Pharmaceuticals Inc. Mr. Garrett holds a B.A. in Finance from the University of Iowa, Iowa City and an M.B.A. from the Kelley School of Business, Indiana University Bloomington.

Financial Highlights

IRTC has had impressive revenue growth. Revenue increased 66.35% between 2014 and 2015, and 79.8% between the six months ended June 30, 2015 and 2016. Gross margin has also increased. The company recorded gross margins of 57% and 66% for the last six months ended June 30, 2015, and the last six months ended June 30, 2016, respectively. This increase was driven largely by the company’s efforts to lower manufacturing costs, and reduce labor costs through algorithm improvements. As of June 30, 2016, the company had an accumulated deficit of $116.8 million.

IPO Performance

IRTC raised $107 million through its offer of 6.3 million shares on Oct. 19. IRTC shares priced at $17, above the initial price range of $13 to $15. The firm had originally planned to raise $75 million and offer 5.4 million shares, but increased the number due to the large demand. Shares returned 53.4% on the first day of trading. Since then the share price has ranged between $23 to $27 per share.

Conclusion: Buy

Irhythm Technologies Inc (NASDAQ:IRTC) is growing revenue significantly faster than its competitors and is well positioned for continued growth in the large and expanding ambulatory cardiac monitoring market.

The company is backed by several notable venture capital firms, as well as a strong team of underwriters.

We expect its underwriters will be eager to release detailed positive reports at the expiration of the upcoming quiet period which will likely lead to a jump in share price.

We recommend that investors purchase shares in advance of the company’s quiet period expiration on 11.14.16 in order to benefit from what we predict will be a temporary price uptick in the surrounding days.

Note: This article is written by Don Dion. Visit his site at DRD Investments for expert analysis on current and upcoming IPOs.