Electromed ($ELMD):
A Process Company I Like — But Don’t Own (Yet)
Disclosure & context (important):
I currently do not own ELMD. At today’s price, the stock is trading around ~34× forward earnings, which is too expensive for me right now, even though I like the business and the story.
This write-up is not financial advice. I’m doing this analysis for my own accountability and learning. Do your own research, challenge every assumption, and never outsource conviction.
Also worth noting: earnings are coming up next week or so, which makes valuation and expectations especially relevant right now.
The Big Picture
Electromed is quietly becoming a microcap compounder, not because it sells a medical device, but because it is scaling a direct-to-patient operating system in a notoriously messy reimbursement environment.
This is a process company disguised as a device company.
The question is not whether the business is good.
The question is whether the current price already assumes too much perfection.
The Core Thesis
Electromed’s edge is its ability to control the full workflow: referral → reimbursement → fulfillment → patient support. As that workflow gets faster and cleaner, the company generates both growth and operating leverage, which is rare in small-cap medtech.
CEO Jim Cunniff framed it clearly on the most recent earnings call:
“We started the fiscal year with strong momentum, delivering our 12th consecutive quarter of year-over-year revenue and profit growth. This consistency reflects the strength of our business fundamentals, the dedication of our team and the growing recognition of our SmartVest therapy.”
That’s operator language. Not hype. Not macro excuses. Execution.
Why the Business Is Working
1. A Large, Underpenetrated Market
Bronchiectasis is chronic, irreversible, and underdiagnosed. A significant portion of diagnosed patients already meet reimbursement criteria for therapy — yet are not treated early.
Management highlighted that a large percentage of eligible patients qualify but are not prescribed therapy soon enough, which creates a natural runway for growth without changing reimbursement rules — just improving awareness and behavior.
That’s a powerful setup:
market expansion via education, not regulatory heroics.
2. Sales Force Scaling With Real Productivity
This is still a clinical sale, not a marketing gimmick.
Cunniff was direct when asked where growth comes from:
“Adding sales reps… is part of our secret sauce.”
More importantly, productivity is already there. The company is doing ~$1M+ in annualized revenue per rep, which means scaling doesn’t rely on hope — it relies on replication.
This is how predictable growth is built.
3. Workflow Compression Is Becoming the Moat
This is the most underappreciated part of the story.
Electromed is systematically removing friction from prescribing and fulfillment:
Electronic prescribing replacing fax-based workflows
CRM connecting sales and reimbursement teams
Faster documentation, faster approvals, faster shipment
Cunniff explained it simply in Q&A:
“We can get our average days to ship down almost in half and the same thing for time to approve a prescription.”
That matters because speed:
improves patient outcomes
improves conversion
improves sales productivity
improves cash efficiency
This is process leverage, and it compounds quietly.
4. Hospitals as a Gateway, Not the Core
Hospital revenue is growing fast, but management is deliberately cautious.
Cunniff called the hospital channel:
“A little unpredictable.”
That’s good honesty. Hospitals are capital-sale driven, committee-heavy, and lumpy. The strategic logic, however, is sound: hospitals are where patients first present, and exposure there increases the odds of home therapy adoption post-discharge.
This is optional upside, not the core engine — and it’s being treated that way.
5. New Drugs = Awareness Tailwind, Not a Threat
A new pharmaceutical entrant has increased attention on bronchiectasis. Management’s take is pragmatic:
“What the drug doesn’t do is it doesn’t clear the mucus… that’s really where we come into play.”
Different tool. Different job. Potentially complementary.
More awareness means more diagnosis, which expands the funnel for everyone actually treating the disease mechanics.
Financial Quality
Consistent double-digit revenue growth
High-70s gross margins
Mid-teens operating margins with room to expand
No debt
Ongoing share repurchases
Strong cash generation
This is not an “adjusted EBITDA” story. It’s real profitability with improving efficiency.
The Real Risk (and the Only One That Really Matters)
Reimbursement friction.
Not reimbursement eligibility — but delays, denials, cycle times, and payer behavior.
If something breaks, it will show up first in:
accounts receivable
time-to-approval
operating cash flow
Management is attacking this risk directly with workflow tools, education, and speed. But it never fully disappears in healthcare. That’s why valuation discipline matters.
Valuation: Why I Don’t Own It (Yet)
At roughly ~28x 2026 forward earnings, ELMD is expensive by my standards.
This is not a “cheap compounder.”
This is a high-quality compounder priced for continued execution.
At this multiple:
Good execution = fine returns
Great execution = strong returns
Any stumble = fast multiple compression
I like the business more than I like the price.
Two-Year Earnings Power (If Things Go Right)
If Electromed continues to execute:
sustained double-digit revenue growth
stable high gross margins
modest operating leverage
ongoing buybacks
A reasonable 2-year EPS range could look like:
Base: ~$1.30–$1.45
Bull: ~$1.55–$1.70
That’s solid — but it still matters what multiple you pay.
Bear / Base / Bull Valuation (2-Year View)
🐻 Bear Case
Execution slows or reimbursement friction rises
EPS: ~$1.10
P/E: 16–18×
Outcome: ~$18–$20
🟦 Base Case
Execution stays solid, margins inch higher
EPS: ~$1.35
P/E: 22–26×
Outcome: ~$30–$35
🚀 Bull Case
Strong share gains + awareness tailwind + clean execution
EPS: ~$1.60
P/E: 28–32×
Outcome: ~$45–$50+
At today’s price, you’re closer to underwriting Base/Bull, not Bear.
What I’m Watching Into Earnings
With earnings coming next week or so, the things that matter most are:
any commentary on reimbursement delays or approvals
trends in electronic order adoption
sales productivity per rep
hospital growth trajectory (without overinvestment)
gross margin stability
cash conversion vs revenue growth
If those stay clean, the story stays intact — even if the stock doesn’t get cheaper immediately.
Final Take
Electromed is a Top Tier business with:
a real process moat
a long runway
disciplined management
and visible operating leverage
I like the story.
I respect the execution.
I don’t like the current price enough to own it yet.
Sources & References
Company filings & official materials
Electromed, Inc. Investor Relations:
https://investors.smartvest.com
SEC Filings (10-K, 10-Q, proxy statements):
https://www.sec.gov/edgar/browse/?CIK=1488917
Earnings calls & financial results
Q1 FY2026 Earnings Call & Press Release (conference call transcript + results)
https://investors.smartvest.com/news/news-details/2025/Electromed-Inc--Announces-First-Quarter-Fiscal-2026-Results/default.aspxQ4 FY2025 Earnings Call & Full Fiscal Year Results
https://investors.smartvest.com/news/news-details/2025/Electromed-Inc-Announces-Record-Fiscal-2025-Fourth-Quarter-and-Full-Year-Financial-Results/default.aspx
Research & background
B. Riley Securities – Initiation of Coverage (Feb 19, 2025)
(used for background, market structure, and financial framing only)
https://brileysecurities.bluematrix.com/sellside/Initiations.action