Inspire Medical Systems (INSP)

Medical technology company Inspire Medical Systems (NYSE:INSP) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 10.5% year on year to $224.5 million. The company expects the full year’s revenue to be around $905 million, close to analysts’ estimates. Its GAAP profit of $0.34 per share was significantly above analysts’ consensus estimates.

Company Overview

Offering an alternative for the millions who struggle with traditional CPAP machines, Inspire Medical Systems (NYSE:INSP) develops and sells an implantable neurostimulation device that treats obstructive sleep apnea by stimulating nerves to keep airways open during sleep.

The medical devices industry operates a business model that balances steady demand with significant investments in innovation and regulatory compliance. The industry benefits from recurring revenue streams tied to consumables, maintenance services, and incremental upgrades to the latest technologies, although specialty devices are more niche. The capital-intensive nature of product development, coupled with lengthy regulatory pathways and the need for clinical validation, can weigh on profitability and timelines. In addition, there are constant pricing pressures from healthcare systems and insurers maximizing cost efficiency. Over the next several years, one tailwind is demographic–aging populations means rising chronic disease rates that drive greater demand for medical interventions and monitoring solutions. Advances in digital health, such as remote patient monitoring and smart devices, are also expected to unlock new demand by shortening upgrade cycles. On the other hand, the industry faces headwinds from pricing and reimbursement pressures as healthcare providers increasingly adopt value-based care models. Additionally, the integration of cybersecurity for connected devices adds further risk and complexity for device manufacturers.

Inspire Medical Systems competes with traditional sleep apnea treatment providers like ResMed (NYSE:RMD) and Philips Respironics (NYSE:PHG) that manufacture CPAP machines, as well as companies offering alternative surgical interventions for sleep apnea such as Medtronic (NYSE:MDT) and LivaNova (NASDAQ:LIVN).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $882.6 million in revenue over the past 12 months, Inspire Medical Systems is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive. On the bright side, Inspire Medical Systems’s smaller revenue base allows it to grow faster if it can execute well.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Inspire Medical Systems’s 55.8% annualized revenue growth over the last five years was incredible. Its growth surpassed the average healthcare company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Inspire Medical Systems’s annualized revenue growth of 24.4% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Inspire Medical Systems reported year-on-year revenue growth of 10.5%, and its $224.5 million of revenue exceeded Wall Street’s estimates by 1.9%.

Looking ahead, sell-side analysts expect revenue to grow 13.1% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is commendable and indicates the market is forecasting success for its products and services.

Although Inspire Medical Systems was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 3.4% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out.

On the plus side, Inspire Medical Systems’s operating margin rose by 26.6 percentage points over the last five years, as its sales growth gave it operating leverage. Zooming in on its more recent performance, we can see the company’s trajectory is intact as its margin has also increased by 12.9 percentage points on a two-year basis.

In Q3, Inspire Medical Systems generated an operating margin profit margin of 4.3%, down 2.8 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Inspire Medical Systems’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q3, Inspire Medical Systems reported EPS of $0.34, down from $0.60 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Inspire Medical Systems’s full-year EPS of $1.47 to shrink by 13.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Inspire Medical Systems has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.7%, subpar for a healthcare business.

Taking a step back, an encouraging sign is that Inspire Medical Systems’s margin expanded by 26.4 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Inspire Medical Systems has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 24.5%, meaning management lost money while trying to expand the business.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Inspire Medical Systems is a profitable, well-capitalized company with $322.6 million of cash and $30.3 million of debt on its balance sheet. This $292.3 million net cash position is 13.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Inspire Medical Systems beat analysts’ revenue and EPS expectations this quarter. We were also excited its full-year EPS guidance outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside, especially after a weak quarter in Q2 that saw guidance massively lowered. This could be a first step in stabilization of the business and the stock, and shares traded up 9.3% to $80.50 immediately following the results.

Updated: December 4, 2025 at 10:47 PM EST

Are you wondering whether to buy Inspire Medical Systems or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

When it comes to Inspire Medical Systems’s business quality, there are some positives, but it ultimately falls short. To kick things off, its revenue growth was exceptional over the last five years. And while Inspire Medical Systems’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its growth in domestic medical centers was surging.

Inspire Medical Systems’s P/E ratio based on the next 12 months is 82.2x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $123.07 on the company (compared to the current share price of $142.16).