Since going public about seven years ago, shares in ReWalk Robotics, a Marlborough, Massachusetts-based robotic exoskeleton provider, had plummeted about 99.7% as of September 24.
But this week, 49-employee ReWalk was the fourth most active stock in the U.S., according to Trading View, as it soared 56% to a market capitalization of $100 million.
With active bullish discussion about the shares on Stocktwits, is it too late to jump on the ReWalk bandwagon? I see three reasons to avoid this stock:
- Out-of-reach expectations and scrambles to avoid delisting
- Weak financial outlook
- Plunging short-interest
(I have no financial interest in the securities mentioned in this post).
ReWalk Robotics’ Great Founding Story
ReWalk Robotics has a very compelling story — tinged with sadness. Dr. Amit Goffer, an electrical engineer with a PhD in physics, started ReWalk in 2002 “after becoming quadriplegic due to an accident,” CEO Larry Jasinski told me in a November 2015 interview.
Goffer started the company to get his life back, and to exercise his technical talent. “Simply put, he wanted to regain much of what he had lost by becoming paralyzed. He sought independence, something he could use in almost any environment and that he could wear all day. [To that end, ReWalk created its] exoskeleton for paraplegics. We allow an individual that is completely paralyzed from the chest down to walk in the community, at work, at home or in any event in everyday life.”
In September 2014, ReWalk went public at $12 a share — selling three million shares at a value of $136 million. Adjusting for an April 2019 25-or-1 reverse stock split (which would convert, say, 100 shares to four), ReWalk’s stock price has dropped from $775 to $2 a share in the last seven years.
Out of Reach Expectations And Scrambles To Avoid Delisting
In the five years since I first interviewed Jasinski, ReWalk revenues have mostly moved down — from $5.5 million in 2016 to $7.8 million in 2017 before declining steadily to $4.4 million in 2020.
ReWalk has been more creative and successful at raising capital than it has been at developing products that increase its market share and revenues.
For example, in August, 2016, ReWalk was forecasting revenue for the year in the range of $6.2 million to $7 million on the basis of a program that would convert many customers from a $77,500 purchase price for its exoskeletons to a $3,000 a month rental arrangement for which it hoped to recruit insurance companies who would cover the cost.
Sadly, ReWalk’s $5.5 million in revenue fell 17% short of the midpoint of its 2016 revenue forecast. But the company was optimistic that a combination of a $20 million line of credit at a 10.75% interest rate, and additional stock sales would keep it going despite a $28 million cash burn rate in the year ending June 2016.
By that November, ReWalk was hoping to raise capital by convincing investors to buy up to 3,250,000 units — one ordinary ReWalk share, and 0.75 of a warrant to purchase one ordinary share with an exercise price of $4.75 — at $3.75 apiece.
This was disappointing to investors and in December 2016, Nasdaq informed ReWalk that it was in violation of the $50 million minimum market capitalization requirement to maintain its listing — giving ReWalk six months to get back into compliance.
In November 2018, ReWalk announced that it had again received a notice from Nasdaq that it had failed to comply with a lower $35 million market capitalization requirement or at least $2.5 million in shareholders’ equity.
In February 2019, ReWalk completed a follow-on public offering and two months later, it closed a direct share offering and a private placement of warrants to purchase its common shares. In March 2019, ReWalk did a 25:1 reverse stock split.
All of that worked. In April 2019, the Nasdaq decided that ReWalk was back into compliance with its $2.5 million in shareholders’ equity listing requirement.
By March 2020, its listing was again in danger. That was when Nasdaq notified ReWalk that its share price had fallen below $1 for the previous 30 days and the company had until September 2020 to get its stock price above $1 for 10 consecutive business days.
The next month, ReWalk shares began trading above $1 a share and they have remained there since.
Weak Financial Outlook
ReWalk’s latest financial results featured declining revenue. Specifically, ReWalk’s revenue in the second quarter dropped 17.6% to $1.4 million in revenue due mainly to fewer units sold of its Personal 6.0 product in Europe, CFO Ori Gon told investors in the company’s conference call.
I cannot find any forecasts or guidance for ReWalk. However, Jasinski is optimistic about the company’s future. In a September 21, interview with TWST, he highlighted demand in Germany where “their coverage is the most complete.”
He also sees potential in the U.S. due to what he said is a “national coverage policy with the VA. So veterans in the United States have access to these products.” In the next 12 months or so, he expects to sign a contract with the Center for Medicare Services (CMS) with an established price and category.
He attributes slow market uptake to the need to educate people to understand and decide how to use what he deems “a disruptive technology.” He is also optimistic that due to Covid-19, users and medical payers are seeing the value of being able to manage and improve health from home.
To be sure, the company is in no imminent danger of running out of cash. After more than tripling its cash balance in the first quarter of 2021, ReWalk — which burned through $3.2 million in cash from operations in the second quarter — ended June 2021 with about $64 million in cash.
So why is ReWalk not matching Jasinski’s optimistic words with a bullish revenue forecast?
Plunging Short Interest
With no market-moving news filed with the SEC this month, it is hard to see what caused ReWalk shares to pop 56% this week. InvestorPlace attributes the rise to “a short squeeze [prompted by] a typical case of traders on social media coming together to push shares higher.”
To be sure, one poster on Twitter delighted in squeezing short sellers. SmartRocketTrades @SmartTradesWin tweeted, “$RWLK ReWalk Robotics watching the shorts getting burned” on September 21 the day its shares nearly doubled to $2.59.
However, there is very little short interest in ReWalk shares. According to the Wall Street Journal, short interest fell about 50% to a mere 0.26% of its float as of September 15.
So how can frantic short covering explain the rise in its stock?
When investors can buy shares of companies whose revenues are growing at over 100% a year, why would they want to own stock in ReWalk?
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ReWalk Robotics Stock Up 56%: Great Origin Story, Poor Financial Prospects - Forbes
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