We came across a bullish thesis on ICAD, Inc. (ICAD) on Multibagger Monitor’s Substack by Multibagger Monitor. In this article, we will summarize the bulls’ thesis on ICAD. ICAD, Inc.’s share was trading at $1.76 as of Oct 22nd.
Copyright: epstock / 123RF Stock Photo
iCAD is a prominent leader in computer-aided detection (CAD) and artificial intelligence (AI) for mammography, having significantly advanced breast cancer imaging technology over its 20-plus year history. Positioned at a critical juncture, iCAD is leveraging the increasing demand for AI-driven solutions amid a radiologist shortage, rising incidence rates linked to environmental factors, including exposure to microplastics and the use of certain cosmetics, and favorable legislative changes. Despite facing a multi-decade-low stock price, the company has a strong foundation to emerge as a pivotal player in the breast cancer detection market.
Central to iCAD’s growth strategy is its transition from a traditional medical device company to a subscription-based software-as-a-service (SaaS) model. This shift is expected to unlock over $30 million in annual recurring revenue (ARR) while enhancing operational margins, potentially reaching up to 85%. iCAD’s solid cash position and breakeven operations further insulate it from short-term execution risks, enabling the company to focus on growth. The mammography sector faces significant challenges, with 20-40% of cancers going undetected, alongside a troubling 60% no-show rate for annual imaging appointments. AI can help mitigate these issues, with iCAD’s FDA-approved software doubling mammogram reading speeds and boosting cancer detection rates by 23%.
iCAD’s flagship product, the ProfoundAI Breast Health suite, is at the forefront of the market, equipped with algorithms trained on vast datasets from over 100 global centers. While competitors like Hologic dominate in mammography unit installations, iCAD’s software is recognized as best-in-class. Strategic partnerships with industry leaders, such as GE Healthcare, Google Health, and NVIDIA, bolster its competitive advantage and market position.
Under CEO Dana Brown’s leadership, iCAD has shifted focus from its previous acquisition of Xoft, redirecting efforts towards AI and improving operational efficiency. The company is currently in Phase 3 of its transition, moving towards full cloud-based subscriptions, targeting 2,500 installed units for conversion. With the mammography market projected to grow at a compound annual growth rate (CAGR) of 8.9% through 2030, iCAD’s partnerships should facilitate capturing this growth. Legislative changes, including mandatory breast density assessments, earlier screening guidelines, and potential CPT codes for AI-assisted mammography, could enhance iCAD’s software value and market penetration, driving revenue growth and improved outcomes.
The company’s current revenue generation stands at around $5 million quarterly, with breakeven projected at $6 million per quarter within a year. iCAD’s management has indicated no need for additional funding to pursue growth initiatives, and with net cash of $20 million, it remains well-positioned.
Relative to Volpara Health ($VHT.AX) which has inferior technology and market penetration it was acquired for ~8x revenues, while Radnet’s AI segment fetched 7-10x revenues. If iCAD achieves 30% YoY ARR growth over the next three years and reaches operational breakeven, an 8x multiple could make the stock a 5-bagger. This estimate is conservative, as it ignores non-recurring revenues, global expansion, and net cash. Potential acquirers like Hologic, Radnet, or Lunit add appeal.
Despite the potential for significant upside through SaaS adoption, risks remain, including management’s historical missteps and market perceptions of the total addressable market (TAM). Nevertheless, the strategic focus on AI-driven solutions, coupled with regulatory support and a strong financial base, positions iCAD for a promising turnaround. If successful in capturing its market potential, particularly through favorable legislative changes, iCAD could witness substantial growth and a favorable revaluation in the coming years.
ICAD, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 5 hedge fund portfolios held ICAD at the end of the second quarter which was 5 in the previous quarter. While we acknowledge the risk and potential of ICAD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.
Disclosure: None. This article was originally published at Insider Monkey.