Amid today’s dreadful cost of living crisis, it's easy for investors to forget the long-term deflationary forces of the internet, providing hard-up customers with greater choice, price transparency and lower prices. It also offer innovative new businesses opportunities to upturn even established markets by launching best-of-breed products at competitive prices, reducing supply chain costs, improving inventory management or selling direct to the consumer (DTC).
This strategy has worked perfectly for the likes of Amazon, and is now gaining momentum too in far more sophisticated areas such as medical devices.
Once company is taking advantage of the trend is pioneering portable oxygen concentrator (POC) firm Belluscura (BELL ), which announced this morning that it had launched a new DTC channel to complement its existing US distributor model.
The strategic rationale behind the launch is to allow individual patients and smaller local operators to access world class POCs at affordable prices, backed up by excellent service and logistics. It's true that this will take a little while to reach optimum velocity, but there is already significant unmet demand for this type of offer..
In particular, industry leader Inogen has already publicly said it’s struggling to supply sufficient machines due to acute component shortages. And worse has had to lift prices to cover elevated input costs for scarce microchips and other electronic parts.
CEO Bob Rauker commented: "Going direct to consumers will allow us to increase our revenue & profits long term.”
Chairman Adam Reynolds added: “This is a significant opportunity for Belluscura along with making our product available to the hundreds of smaller, local supplemental oxygen providers.”
As for the the valuation, I think the stock more than justifies a 2025 12x-15x EV/EBIT multiple, based on the estimated future 50%+ gross margins and significant growth prospects. Discounting this back at 12% and adjusting for $9.3m of forecast December 22 net cash leads to a theoretical valuation of 200p-240p per fully diluted share. That's in line with broker Dowgate Capital's 200p target price.
With many of Belluscura's larger rivals either selling inferior products or struggling with supply chain issues, then I believe the company has the right products and go-to-market strategy to win a material share of this $1.4bn - and rapidly expanding - market.
