Senseonics (NYSEMKT:SENS) stock has jumped 70% in the last month on hype from Reddit contributors. But SENS stock may be appealing for a reason beyond its short-squeeze potential; the sales of the company’s flagship diabetes monitoring product, Eversense, could soar in the coming years.
But the stock’s current market capitalization of around $1.5 billion more than reflects this possible future success. For now, however, the shares could tread water. That’s because speculators who recently bought the shares, to make a quick buck, still have hope that more buyers will climb on board. forcing the many short sellers to cover their positions at much higher prices.
But, as time goes on and more longs cash out than the number who buy SENS stock, the longs could capitulate, sending the name back down to $2 per share or lower. Prior to its most recent rally, the shares changed hands for around $2.
So don’t buy Senseonics’ shares because r/WallStreetBets (WSB) contributors are talking about them. Those who are upbeat on its diabetes monitoring product, Eversense, should wait for the shares to tumble.
Based on estimates of sales of Eversense over the long-term, the valuation of SENS stock may be reasonable at $2 per share. Below that level, it’s a high-risk stock that’s worth buying.
SENS Stock and its Short-Squeeze Potential
Last month’s wave of Reddit-fueled “meme stock” rallies sent many names, including SENS stock, higher. Between Jun 2 and Jun 14, its shares more than doubled in value. And, even as the hype has taken a breather, so far it’s only pulled back slightly, closing yesterday at $3.50 per share.
For some of those who bought the shares at relatively low valuations, it may look like prime time to take a profit. Yet other traders who paid more for the stock are still waiting for the ultimate “squeeze” to arrive.
That is, they believe that, with 23% of its float sold short, SENS stock has the potential to climb even higher, as the so-called “smart money” betting against it scrambles to cover its short positions.
But don’t bank on that happening. For starters, Senseonics is not being talked about on WSB nearly as much as other short-squeeze targets, like Clover Health (NASDAQ:CLOV) and ContextLogic (NASDAQ:WISH).
More importantly, even if there was more chatter about Senseonics, it’s questionable whether a new short squeeze could ensue. As I’ve recently discussed in other columns, even more popular squeeze plays have little chance of popping further, as this latest Reddit-inspired wave of rallies has run out of gas.
When Should Investors Consider Buying SENS Stock?
When it comes to assessing the longer-term potential of SENS stock, it’s important to realize that the company’s revenue could jump tremendously in the coming years. But it will not soar to a level that justifies buying it for around $3.50 per share. The stock must pull back substantially before the company’s growth potential makes the shares worth buying.
As more traders realize that the shares won’t be boosted by a short squeeze, the stock will likely sink. At the very least, it will tumble back to $2 per share. The shares may be a buy at that price because, as I mentioned, the sales of Eversense are likely to surge in the coming years.
Based on the company’s long-term projections, which call for $150-$200 million of net sales by 2025, SENS stock may look pricey even at $2 per share. At the latter level, its market capitalization would be about $856 million
But, given that the glucose monitoring market is worth around $12.6 billion, the annual revenue generated by Evercore could soar well over $200 million in the years after 2025.
On the other hand, it’s not as if this company won’t face competitive challenges, even though it has partnered with an industry leader,Ascensia Diabetes Care. As another InvestorPlace’ columnist, Larry Ramer, pointed out in his June 18 column, Senseonics may face difficulty capturing market share from Dexcom (NASDAQ:DXCM), a more established name in the CGM space.
In short, at $2 per share, some may view SENS stock as a buy. But it may not be a screaming buy unless it gives up almost all of its 2021 gains and falls back toward $1 per share.
The Bottom Line
For those considering buying Senseonics because they think it could be boosted by a short squeeze, don’t count on it. On the other hand, those who want to buy the shares based on Eversense’s prospects should wait for the stock to decline
SENS stock is still risky at $2 per share. At that price, the stock bakes in unfettered growth between now and 2025 . But, once the Reddit crowd gives up on squeezing the shares higher, they may briefly pull back to a more favorable entry point of between $1 and $1.50 per share.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.