Globus Medical (GMED)

Medical device company Globus Medical (NYSE:GMED) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 1.4% year on year to $598.1 million. On the other hand, the company’s full-year revenue guidance of $2.85 billion at the midpoint came in 4.2% above analysts’ estimates. Its non-GAAP profit of $0.68 per share was 8.6% below analysts’ consensus estimates.

Company Overview

With operations spanning 64 countries and a portfolio of over 10 new products launched in 2023 alone, Globus Medical (NYSE:GMED) develops and sells implantable devices, surgical instruments, and technology solutions for spine, orthopedic, and neurosurgical procedures.

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.

Globus Medical's main competitors include Alphatec Holdings, Orthofix, Integra LifeSciences, and ZimVie, as well as larger medical device companies that operate in the musculoskeletal space such as Medtronic, Stryker, and Johnson & Johnson's DePuy Synthes.

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 $2.51 billion in revenue over the past 12 months, Globus Medical has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Globus Medical’s sales grew at an exceptional 25.9% compounded annual growth rate over the last five years. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Globus Medical’s annualized revenue growth of 53.3% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

We can dig further into the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 61.4% year-on-year growth. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Globus Medical.

This quarter, Globus Medical missed Wall Street’s estimates and reported a rather uninspiring 1.4% year-on-year revenue decline, generating $598.1 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 11.7% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is admirable and suggests the market is baking in success for its products and services.

Globus Medical has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 12.1%, higher than the broader healthcare sector.

Looking at the trend in its profitability, Globus Medical’s operating margin decreased by 6.5 percentage points over the last five years. This performance was caused by more recent speed bumps as the company’s margin fell by 12.1 percentage points on a two-year basis. We’re disappointed in these results because it shows its expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Globus Medical generated an operating profit margin of 16.2%, up 14.9 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

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.

Globus Medical’s EPS grew at a spectacular 13.8% compounded annual growth rate over the last five years. However, this performance was lower than its 25.9% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

Diving into Globus Medical’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Globus Medical’s operating margin improved this quarter but declined by 6.5 percentage points over the last five years. Its share count also grew by 36.8%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q1, Globus Medical reported EPS at $0.68, up from $0.63 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Globus Medical’s full-year EPS of $3.10 to grow 14%.

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.

Globus Medical has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 15.8% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Globus Medical’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Globus Medical’s free cash flow clocked in at $141.2 million in Q1, equivalent to a 23.6% margin. This result was good as its margin was 19.7 percentage points higher than in the same quarter last year. Its cash profitability was also above its five-year level, and we hope the company can build on this trend.

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 Globus Medical has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.

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. Over the last few years, Globus Medical’s ROIC has unfortunately decreased. If its returns keep falling, it could suggest its profitable growth opportunities are drying up. We’ll keep a close eye.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Globus Medical is a profitable, well-capitalized company with $461.3 million of cash and $92.31 million of debt on its balance sheet. This $369 million net cash position is 3.8% 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 Globus Medical’s optimistic full-year revenue guidance, which blew past analysts’ expectations. On the other hand, its full-year EPS guidance missed along with its revenue, EPS, and EBITDA. Overall, this was a softer quarter. The stock traded down 17.1% to $60 immediately following the results.

Updated: May 10, 2025 at 11:38 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Globus Medical, you should also grasp the company’s longer-term business quality and valuation.

Globus Medical is a fine business. To kick things off, its revenue growth was exceptional over the last five years. And while its diminishing returns show management's recent bets still have yet to bear fruit, its constant currency growth has been marvelous. On top of that, its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders.

Globus Medical’s P/E ratio based on the next 12 months is 15.8x. Looking at the healthcare space right now, Globus Medical trades at a compelling valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $87.23 on the company (compared to the current share price of $55.80), implying they see 56.3% upside in buying Globus Medical in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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