Hook & thesis
iRhythm is moving from a high-growth, cash-burning digital-health name into a business that can grow revenue while reaching operating profitability. The latest quarter (Q3 fiscal 2025) showed sequential revenue strength, a meaningful narrowing of operating losses and positive operating cash flow. That combination - continued top-line momentum with margin operational discipline - supports a tactical long here with defined risk controls.
In plain terms: demand for Zio services is intact (Q3 revenue $192.9M), unit economics are healthy (gross profit $137.1M, gross margin roughly 71%) and management is finally showing operating leverage (operating loss down to -$8.4M). Those are the ingredients for a structural shift to profitable growth rather than the old narrative of perpetual scale-at-all-costs.
What the company does and why the market should care
iRhythm combines a 14-day wearable ECG patch and cloud-native analytics to provide ambulatory cardiac monitoring (the Zio system). Doctors use the Zio product set to diagnose arrhythmias faster than with traditional Holter monitors. The product has clinical validation (several trials referenced in company releases) and is positioned in a large, growing global cardiac monitoring market driven by telehealth and screening initiatives.
Why investors should care now: iRhythm is finally turning the operating model. Quarterly results show growth and margin trajectory that could support a re-rating if sustained. The broader market for remote cardiac monitoring is also expanding, which gives the company optionality to cross-sell expanded Zio services (long-term continuous monitoring, home-based screening) into a white-space market.
Numbers that matter (recent trend)
- Q3 2025 revenue: $192.9M (quarterly). By comparison, Q3 2024 revenue was $147.5M - a ~31% year-over-year lift across that window.
- Gross profit Q3 2025: $137.1M - implying a gross margin around 71% (137.1 / 192.9).
- Operating income Q3 2025: -$8.4M, down from -$32.6M in Q1 2025 and -$18.7M in Q2 2025. The operating loss has trended sharply toward break-even.
- Net income Q3 2025: -$5.2M, sequentially improved from -$30.7M (Q1) and -$14.2M (Q2).
- Operating cash flow Q3 2025: +$34.9M (positive and growing; Q1 was -$7.9M, Q2 +$27.7M). Positive CFO with revenue growth is the key operational inflection.
- Cash and liquidity: $472.1M cash on the balance sheet at quarter-end and total assets ~$995.2M; liabilities totaled ~$873.3M and equity ~$121.9M.
Those line items tell a consistent story: top-line expansion, strong gross margin, compressing operating losses and positive operating cash flow. That is a classic pre-profitability profile that, if continued, should materially de-risk the equity.
Valuation framing
The stock closed at $154.51 on 01/31/2026. Using the most recent diluted average shares from the quarter (~32.17M), the implied market cap is approximately $5.0B (154.51 * 32.17M ≈ $4.97B).
If you approximate enterprise value by subtracting cash ($472.1M) and adding noncurrent liabilities (used here as a proxy for debt-like obligations, $726.4M), you get an EV around $5.2B. Annualizing the latest quarter's revenue (Q3 revenue $192.9M × 4 ≈ $772M) yields an EV / revenue of roughly ~6.8x.
That multiple is elevated relative to many medical-device or diagnostics names, but it is not an outlandish premium for a fast-growing, software-enabled medical device business with >70% gross margins and improving operating leverage. The peer set in the dataset is not a clean set of cardiac-monitoring comparables, so comparisons are qualitative: iRhythm is priced more like a high-growth digital-health/specialty device name than a traditional MedTech slow-grower. The justification for the premium must be sustained revenue growth and continuing margin improvement.
Trade idea - actionable plan
Trade direction: Long. Time horizon: position (3-12 months). Risk level: Medium.
Plan (size 1-2% of portfolio as a tactical position; adjust to risk tolerance):
- Entry (scale): 145 - 155. Current print is 154.51; buying into 145-155 gives sensible conviction while leaving room for market noise.
- Initial stop-loss: 135 (roughly 10% below the 145 entry band). Tight enough to limit downside but wide enough for normal beta.
- Targets:
- Near-term (6-12 weeks): $170 - technical retest of recent highs and market re-rating on continued operational prints.
- Medium (3-6 months): $200 - reflects re-acceleration to ~EV/sales re-rating toward 8x if growth and margin leverage continue.
- Bold upside (12 months): $230 - if revenue scale sustains, operating profitability is achieved and catalysts (see below) resolve positively.
Position management: scale into the 145-155 range; if a quarterly report (next expected printing around 01/12/2026 earnings event) confirms revenue beat and continued operating cash flow growth, add a second tranche. Trim into strength at target bands and tighten stops to breakeven once the position is up >15%.
Catalysts
- 01/12/2026 earnings and revenue print - expectations in the calendar show revenue estimate ~$205.1M and EPS estimate $0.0356 for Q4 2025; a beat on revenue and confirmation of operating cash flow would be an immediate re-rating catalyst.
- Continued Zio demand expansion and product adoption (LTCM and MCT product rollouts) that sustain the 20-30% annual growth profile.
- Large randomized trials and clinical data (positives documented in prior releases) that further cement Zio as a standard of care for atrial fibrillation screening and long-term monitoring.
- Any favorable developments on reimbursement or payer contracts that materially improve unit economics or increase utilization.
Risks and counterarguments
My bullish thesis is balanced by concrete risks. If any of these materialize the trade should be reconsidered quickly.
- Legal and headline risk: there are active class-action notices referenced in filings. Adverse rulings, protracted litigation or large settlements could hit the equity and cash flow.
- Reimbursement or payer pushback: the business depends on clinical acceptance and payer coverage. Any tightening of reimbursement could depress volumes or force price concessions, compressing margins.
- Execution on new products: the company has roadmaps (MCT, LTCM expansion). Delays or failed launches would blunt growth and delay margin leverage.
- Valuation vulnerability: the current EV / revenue (~6.8x using the recent quarter annualized) assumes continued growth + margin improvement. If growth stalls, multiples could re-rate sharply.
- Balance-sheet concentration: while cash is healthy (~$472M), liabilities are material (~$873M). The composition of those liabilities (some noncurrent obligations) matters; the dataset doesn't fully detail term debt vs. other items. If financing needs arise, dilution is a risk.
Counterargument: opponents will say the name is still a growth-at-a-premium stock in a competitive, regulatory and reimbursement-fragile sector. That is fair: the upside depends on execution and payer acceptance. I still prefer a tactical long because the company is finally producing positive operating cash flow with shrinking operating losses - a real operational improvement - and the balance sheet gives it runway to see the opportunity through.
What would change my mind
- I would downgrade the trade if next quarter fails to show continued positive operating cash flow or if operating losses widen again (e.g., operating income materially worse than -$8.4M).
- A material negative legal development or large settlement that meaningfully reduces cash (into the low hundreds of millions) would also change the view.
- Evidence of durable reimbursement headwinds or loss of major payer contracts would force a reassessment.
Conclusion
iRhythm's recent financials show the kind of operational inflection investors want to see before paying up for growth. Revenue has moved from $158.7M (Q1 2025) to $186.7M (Q2) to $192.9M (Q3), operating losses have compressed materially and operating cash flow is positive and growing ($34.9M in Q3). Those are measurable improvements that support a tactical long with disciplined risk controls.
This is not a no-risk trade: legal, reimbursement and execution risks are real. But for disciplined traders willing to accept medium-level risk, the 145-155 entry band, a 135 stop and staged targets to $170 / $200 / $230 provides a clear plan that balances upside with defined downside.
Key date to watch: 01/12/2026 - the next earnings calendar event. A clean beat there and continued CFO strength would validate the thesis; a miss would trigger the stop or a reweighting depending on magnitude.
Trade plan summary - Long IRTC: entry 145-155; stop 135; targets 170 / 200 / 230; time horizon 3-12 months; size modest (1-2% of portfolio) given headline and reimbursement risk.