Penumbra (PEN)

Medical device company Penumbra (NYSE:PEN) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 17.8% year on year to $354.7 million. Its non-GAAP profit of $0.97 per share was 5.3% above analysts’ consensus estimates.

Company Overview

Founded in 2004 to address challenging medical conditions with significant unmet needs, Penumbra (NYSE:PEN) develops and manufactures innovative medical devices for treating vascular diseases and providing immersive healthcare rehabilitation solutions.

The medical devices and supplies industry, particularly in the fields of cardiology, neurology, and vascular care, benefits from a business model that balances innovation with relatively predictable revenue streams. These companies focus on developing life-saving devices such as stents, pacemakers, neurostimulation implants, and vascular access tools, which address critical and often chronic conditions. The recurring need for these devices, coupled with growing global demand for advanced treatments, provides stability and opportunities for long-term growth. However, the industry faces hurdles such as high research and development costs, rigorous regulatory approval processes, and reliance on reimbursement from healthcare systems, which can exert downward pressure on pricing. Looking ahead, the industry is positioned to benefit from tailwinds such as aging populations (which tend to have higher rates of disease) and technological advancements like minimally invasive procedures and connected devices that improve patient monitoring and outcomes. Innovations in robotic-assisted surgery and AI-driven diagnostics are also expected to accelerate adoption and expand treatment capabilities. However, potential headwinds include pricing pressures stemming from value-based care models and continued complexity changing from navigating regulatory frameworks that may prioritize further lowering healthcare costs.

Penumbra competes with several large medical device manufacturers including Boston Scientific (NYSE:BSX), Medtronic (NYSE:MDT), and Stryker (NYSE:SYK), as well as specialized companies like Inari Medical (NASDAQ:NARI) in the thrombectomy space and Terumo Corporation (OTC:TRUMY) in vascular devices.

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 $1.33 billion in revenue over the past 12 months, Penumbra 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.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Penumbra’s 19.9% annualized revenue growth over the last five years was impressive. Its growth beat the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Penumbra’s annualized revenue growth of 15.8% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

Penumbra also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 15.7% year-on-year growth. Because this number aligns with its normal revenue growth, we can see that Penumbra has properly hedged its foreign currency exposure.

This quarter, Penumbra reported year-on-year revenue growth of 17.8%, and its $354.7 million of revenue exceeded Wall Street’s estimates by 4.2%.

Looking ahead, sell-side analysts expect revenue to grow 12.8% over the next 12 months, a deceleration versus the last two years. Still, this projection is commendable and implies the market is forecasting success for its products and services.

Penumbra was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.2% was weak for a healthcare business.

On the plus side, Penumbra’s operating margin rose by 8.6 percentage points over the last five years, as its sales growth gave it operating leverage. The company’s two-year trajectory shows its performance was mostly driven by its recent improvements.

In Q3, Penumbra generated an operating margin profit margin of 13.8%, up 2 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Penumbra’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, Penumbra reported adjusted EPS of $0.97, up from $0.85 in the same quarter last year. This print beat analysts’ estimates by 5.3%. Over the next 12 months, Wall Street expects Penumbra’s full-year EPS of $3.63 to grow 27.9%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Penumbra 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 4.3%, subpar for a healthcare business.

Taking a step back, an encouraging sign is that Penumbra’s margin expanded by 17.2 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Penumbra historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.3%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Penumbra’s has increased over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

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

Penumbra is a profitable, well-capitalized company with $470.3 million of cash and $217 million of debt on its balance sheet. This $253.3 million net cash position is 2.4% 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.

We were impressed by how significantly Penumbra blew past analysts’ constant currency revenue expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 18.7% to $268 immediately after reporting.

Updated: December 4, 2025 at 11:06 PM EST

Before deciding whether to buy Penumbra or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Penumbra isn’t a bad business, but we’re not clamoring to buy it here and now. To kick things off, its revenue growth was impressive over the last five years. And while Penumbra’s subscale operations give it fewer distribution channels than its larger rivals, its rising cash profitability gives it more optionality.

Penumbra’s P/E ratio based on the next 12 months is 61x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $306.33 on the company (compared to the current share price of $294.84).