Now this was a very fun company to research
Electromed came up in a screen for consistent micro-cap compounders. Revenue has risen every year for ten years, compounding at 12.4% a year from $23.0m in FY16 to $73.8m in FY26, and grew 10% or more in each of the last six years. Operating margin more than doubled over FY23–FY26, from 8.3% to 18.8%. The company has no debt, $20.5m of net cash and a 22.5% return on invested capital.
The business
Electromed sells one product, the SmartVest, a vest that shakes mucus loose from the lungs. Three-quarters of its homecare referrals are for bronchiectasis. It sells direct to patients and bills their insurers itself; Medicare and its supplemental plans account for 48% of homecare revenue. It is one of four US vest suppliers, and in 2024 it billed 24% of traditional Medicare's vest spending, more than any other single supplier.
The thesis
The shares fell more than 18% after a slower fourth quarter and the CEO's retirement notice, and the market fears that Insmed's new pill, Brinsupri, will replace the vest. At $27.85 a reverse DCF implies revenue shrinking about 3% a year. I think the fear is overdone. Brinsupri treats inflammation, not mucus; Insmed's own patient brochure tells patients to take it alongside their existing routine; and Medicare does not require patients to try the drug before a vest.
My base case is about 10% revenue growth in FY27, below the 12.7% analysts expect, and most of it is already hired: 62 homecare reps were in seat at June 2026 against an FY26 average of 58.
Valuation
Discounting at the 10-year Treasury yield, and taking risk through a 40% margin of safety, I value the shares at about $62 in the base case, $33 in the bear case and $91 in the bull case, which gives a buy price of about $37. Even the bear case, with growth slowing to 5% and margins falling to 14%, is worth more than today's price. My base value is above the sell side's $47–$50 targets only because of the discount rate; my growth assumptions are lower than theirs.
What worries me
Electromed has no product moat. The four US vests do the same job about as well as each other and are paid at about the same Medicare rate. Its edge is service and reimbursement, which rivals can copy, and it has no portable vest to answer Tactile's AffloVest. Insurers could make patients try Brinsupri before a vest; new reps may ramp slowly now that the price-and-mix tailwind has gone; a new CEO arrives by April 2027; and insiders have sold about $16.4m of stock since November 2024 without buying.
What to watch
Q1 FY27 results, due around 12 November, are the first test: revenue per rep against management's $1.05m–$1.15m range. After that, watch for any insurer adding Brinsupri as a step before a vest, and for the choice of successor, or a sale, by April 2027.