Tactile Systems' Valuation Is 'Getting Stretched,' BTIG Says In Downgrade

After doubling in value over the past seven months alone, shares of Tactile Systems Technology Inc TCMD are trading at a "stretched" valuation despite expectations for continued growth ahead, according to BTIG.

The Analyst

BTIG's Sean Lavin downgraded Tactile Systems Technology from Buy to Neutral with no assigned price target.

The Thesis

Tactile Systems, a medical technology company that focuses on treatment of chronic diseases at home, should be able to exceed its own 2018 sales guidance growth of 21-23 percent, Lavin said in the Monday downgrade note. Investors should expect the company to deliver future earnings beats, but given the company's momentum, this is already mostly "expected" at the stock's current price, the analyst said. 

Three concerns exist with Tactile Systems, Lavin said:

• The lack of intellectual property protection on key patents including Flexitouch is "not ideal."
• Pneumatic compression device companies face minimal barriers to entry given the relatively low tech involved.
• A mid-single digit price erosion is expected and is higher than other medical technology peers.

Nevertheless, the company's fundamentals remains as strong today as it in the past, and the analyst's downgrade from a bullish stance is strictly due to valuation concerns, he said. The entire medical technology sector is trading above historical multiples, so investors may want to consider a "disciplined" approach to Tactile Systems' stock, according to BTIG. 

Price Action

Shares of Tactile Systems Technology were plunging more than 8 percent off the open Monday. 

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