If You Do the Math, Senseonics Makes No Sense

Stocks to sell

While no one knows for sure what the recent rumblings in the major indices entails, looking at the bigger picture, the post-novel-coronavirus rally has been one of the most remarkable in history. Naturally, the bullishness extended to high-profitability potential growth investments like Senseonics (NYSEAMERICAN:SENS). As a play on the science, Senseonics is brilliant. As a portfolio booster, SENS stock might be a disaster.

A scientist holding up her biotech experiment in a small Petri dish.

Source: Shutterstock

About the only thing that could change the last sentence is if you were short the medical technology firm. To be clear, I’m not recommending you short Senseonics shares, since that brings up another level of variability and risk. However, I am asking you to consider — as an idea, not advice — to sell SENS stock. Perhaps not all of it, but take some profits off the table while you still can.

Before I get deluged with hate mail, let’s go over why the idea of dumping SENS stock arouses intense anger. Fundamentally, I can understand the argument that Sensenoics is a game changer for diabetes patients. In the old paradigm, patients had to endure frequent and often painful finger pricks to monitor their blood-sugar levels. On the other hand, Senseonics provides freedom through its long-term continuous glucose monitoring (CGM) system.

You can read the literature yourself, but to provide a very quick summary, medical professionals insert a sensor underneath the patient’s skin. This enables frequent, accurate monitoring of blood-sugar levels for 90 days (via the Eversense 90-Day CGM System), doing away with finger pricks entirely.

Further, as our own Mark Hake predicted recently, “My thesis is that SENS stock will recover once the FDA allows Senseonics to start selling its device in the U.S.” Further, Hake mentions that Senseonics can follow in the footsteps of another CGM company, DexCom (NASDAQ:DXCM).

It’s possible. Is it probable? The market doesn’t agree.

SENS Stock Is a High-Risk, Low-Probability Trade

You might recall that a week or so ago, one of the biggest headlines was that debris from a Chinese rocket might land somewhere on populated parts of earth. Worse yet, experts didn’t know exactly where the debris would land until hours before impact.

Amid the cacophony, I appreciated one scientist’s voice of reason. The world is about 70% water, so the chances of the debris landing on people are minimal. In other words, you have bigger problems to worry about. And that expert was right.

Sure, the debris killing people made for great headlines. After all, if it bleeds, it leads. But sometimes, you must push away sensationalism and simply run the numbers. That’s really the thesis for SENS stock that matters.

For instance, medical equipment giant Abbott Laboratories (NYSE:ABT) has a CGM called FreeStyle Libre. I’m not sure if this CGM is better than Senseonics’ CGM. But you know what? It doesn’t matter. The market wants ABT, not SENS stock.

Look at the variance in the shares available on Abbott’s bid-ask spread. At time of writing, 10% more shares are available at the bid of $118.53 than the ask of $118.51. Put simply, more buyers exist than sellers, which suggests (though not guarantees) that ABT will move higher.

My InvestorPlace colleague mentioned DexCom. Here, the situation is way starker, with nearly 38% more shares available at a $334.41 bid than an ask of $334.78. It implies again that DXCM will move higher.

Unfortunately, Senseonics is a completely different story. In this case, nearly 36% more shares are available at a $1.91 ask than at a $1.90 bid. Stated another way, it’s the opposite of the current housing market: Way more people want to sell than want to buy.

The Math, Not the Feels

Naturally, the guttural reaction to the above is that people who are selling SENS stock are idiots. Further, I’m an idiot. Nevertheless, my idiocy has no bearing on free market dynamics.

In fact, I could write the most beautifully crafted bullish (or bearish) argument for SENS stock. Folks, it’s not going to change the wide discrepancy in the shares offered on the bid-ask spread. Definitely, it won’t change a discrepancy like this.

But this is a lesson on proper investing strategies, if you want to hear it. Idiots or not, the market is dumping SENS stock — and they want to dump some more! If you feel that’s a bullish case for Senseonics, you’re taking a huge risk. For me, I’m staying away with 10-foot pole.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. 

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