Here's One Undervalued Micro-Cap Stock With Massive Upside Potential

Undervalued micro-cap opportunities are rare to come by. However, in my opinion, Electromed, Inc. (ELMD) is one opportunity that investors should not miss out on. For readers who do not know about Electromed, it is a micro-cap medical equipment company that designs, develops, produces, markets, and sells airway clearance therapy products in the U.S.A. and across the globe.

The company offers SmartVest airway clearance system and related products, which generate high frequency chest wall oscillation that enables airway clearance by loosening and mobilizing respiratory secretions in a patient’s lungs.

Electromed’s primary product is called the SmartVest SQL System, which provides advanced generator programmability, constant bias pressure, and enhanced pause feature with save, lock, and restores functionality.
The SmartVest SQL System has been Electromed’s primary growth driver ever since it got approved a few years ago. Several competitive advantages have contributed to SmartVest SQL System’s strong growth over the years, however, Electromed’s stock still remains undervalued.

Despite the fact that Electromed is a micro-cap company, it has high gross margins, is profitable, and has been reporting strong revenue growth. In addition, the stock is currently undervalued, especially considering its growth potential.

Electromed is currently trading at 16x trailing earnings and a forward P/E of almost 12 shows that analysts are expecting strong earnings growth going forward. In addition, Electromed’s P/S ratio also stands at a conservative 1.49 and the company also has over $3.7 million of net cash position.

Increased pollution has led to an increase in demand for the SmartVest SQL System. With pollution in many big cities still expected to increase around the world, I think Electromed has massive growth potential, making it a stellar micro-cap investment at current levels.

Analysts are expecting Electromed to report strong revenue growth of over 16% (year over year) in the upcoming quarter, whereas its annual sales are also expected to jump 20.2% in the current fiscal year. Given the growth estimates, Electromed is definitely a cheap stock. Medical equipment companies are rarely this cheap and Electromed’s undervaluation makes it an acquisition target as well, further boosting its bull case.


Given the valuation, growth potential, and fundamentals, Electromed’s risk/reward profile is extremely attractive right now. The company is also an acquisition target due to its cheap valuation and is my favorite micro-cap pick as of now. Hence, I think investors should definitely add Electromed to their portfolios.
Published on Jun 1, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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