Inari Medical: Buy On Growing TAM (NASDAQ:NARI)

Inari Medical, Inc. (NASDAQ:NARI) is the leader in treatment of VTE, or venous thromboembolism. Inari is one of the top medical device stocks to own for 2024 for those with high risk tolerance due to high growth rate and the now cheap valuation.

Inari has recently seen a large drop in its share price due to a Department of Justice investigation on doctor payment practices. Those who are scared off by this overhang should pass on NARI until we have more clarity, but this is unlikely to result in a significant fine. This has created a great buying opportunity for risk willing investors looking for a long term growth story in an excellent sector. Inari creates mechanical thrombectomy products for both pulmonary embolism (“PE”) and deep vein thrombosis (“DVT”). Now they are coming out with purpose built products for other similar indications to grow their total addressable market, or TAM, and revenues.

The company has exceptional gross margins, allowing for very high potential operating margins in the long term as they build this new area and improve patient outcomes. They compete in this market with Penumbra (PEN), with both companies showing strong growth and fighting for leadership. Diving into the recent results and new products coming make the bullish thesis for NARI very strong.

Increasing TAM for 2024

NARI’s main products include the ClotTriever and FlowTriever systems allowing for easy removal of venous clots for PE and DVT. They have a strong growth profile and their different variants combine for over 90% of NARI revenues. Q4 revenues were a strong $132.1 million, up 22.6% over the prior year. GAAP loss for Q4 was $9.3 showing the company has a low burn rate, but isn’t quite profitable as they lean into growth initiatives and additional sales reps.

NARI also has a strong margin, with 87.1% gross margin in Q4 of 2023, showing they can potentially increase operating margins to a high level. Guidance for NARI for 2024 was a solid 19% at the midpoint, with management known to aim conservatively. This is solid growth considering Q4 revenues, and showing the confidence that growth can continue even as competition heats up with new products. Long term, the gross margins can improve to near 90% with further scale of manufacturing.

However, a new suite of products from Inari is helping to improve potential for future revenue growth. RevCore is a purpose-built product with $500m U.S. addressable market to treat venous stent thrombosis. RevCore allows for removal of clot around stents in a 1 hour outpatient procedure that should provide a solid option for doctors with no competitor product. This is a significant problem for physicians and RevCore should see solid uptake revenue in the next 2 years for NARI.

InThrill has been in general availability for several quarters and is starting to see traction. The product helps with dialysis access management by targeting vessels in the upper extremities or below the knee. It targets small vessels and has a total market potential of $1 Billion U.S., or over 250,000 procedures per year. The third is the return of the previously released in 2022 Artix product. The product combines mechanical thrombectomy and aspiration to assist in acute limb ischemia cases.

A large 50% of these cases currently require surgery, showing strong unmet need that NARI can fill. This product adds another potential $600 million in market for Inari to go after. These, combined with the recent LimFlow acquisition, gives the company a large number of things to work on for 2024 to spur revenue growth.

This new set of products developed over the past few years are essential to growth in 2025 and beyond, although their contribution percentage in 2024 will still be minimal. The three above are in-house design products from Inari, specifically tailored for use cases where no good option existed. They provided $5.4 million in revenue in Q4, up from $1.8m in the prior year. They are going to continue to be shown separately in future earnings by Inari, as they see them showing the company has another lever of growth coming in addition to International sales.

These new products are at a lower margin initially, but as they scale through the next few years, margins should improve again. International sales are to grow from 6% ending 2023 to more than 20% long term, but due to reimbursement challenges that is a slow and steady improvement.

Even though they have a similar growth profile and both have large share in the market, NARI now trades at a significant discount to Penumbra (PEN). Penumbra does have another neurological business however, making a direct comparison difficult.

That being said, NARI trades at a large enough valuation discount right now against its own history, so I would be a buyer of NARI over PEN. Penumbra has the benefit of scale and profitability which is favored in the current market, however NARI will be consistently profitable by the first half of 2025. Both are expected to grow in the 20% range in 2024 with a consistently growing VTE market over the next decade tailwinds to both stocks.

Buy on depressed valuation

As you can see above, NARI is trading significantly below its valuation from 1 year ago at 4.9x sales. The company made the Limflow acquisition which pushed back its profitability from 2024 to 2025, but should improve the longer-term earnings for the business. As 200,000 are dying from these preventable issues each year, the demand will continue to grow for Inari’s products. The current legal issues shouldn’t scare you off, with the large drop already accounting for those in the share price. Thus, those with a 3-plus year view would do very well to add to positions of NARI below $50 where they currently trade for impressive long-term capital appreciation potential.