Zynex Inc. (ZYXI)

[fishybusiness]

Initiating Coverage on Zynex Inc. (ZYXI)


By Zacks Investment Research Feb 14, 2011, 11:58 AM Author's Website


Zynex Inc.’s (ZYXI) stock was seriously punished with the April 2009 restatement announcement and, despite revenue growth of almost 60% in 2009 and 30% through the first nine months of 2010, has yet to fully recover. Until there is resolution on what we would characterize as “significant” lingering concerns (most notably the outstanding lawsuit and ongoing refund claims by Anthem), we believe Zynex’s stock will continue to trade at a significant discount. Complete insider control and thin float also generally penalizes valuation – as Zynex’s CEO owns 60% of the outstanding shares, we also expect this to continue to weigh on the share price.

We are also concerned about the current absence of a definitive and significant catalyst to propel long-term revenue growth. Zynex’s recent strategy of recruiting competitors’ sales reps may not be sustainable for more than a few more years, especially if larger competitors increase commissions to their reps in order to stem their sales force attrition and the resultant market share losses to Zynex. The new businesses (Monitoring and NeuroDiagnostics) may indeed evolve into very meaningful contributors to and drivers of long-term revenue growth. But until there are more specifics on the products expected to be developed through these businesses and plans relative to R&D strategies and efforts, it is impossible to comfortably gauge the viability of management’s expectations for these units or their potential financial contribution.