With a push from the Kardashians: How the "dream" company became a rare phenomenon on the Tel Aviv Stock Exchange

Between frequent stock exchange reports, complex financial statements, and sharp fluctuations in stocks, it is sometimes difficult for the private investor to navigate the capital market. Globes presents a new column that will analyze one Israeli stock every two weeks, mainly from the second tier, with a value of 500 million shekels or more. We will explain the companies' fields of activity, the financial data behind them, and what every investor needs to know. The columnist is Lior Wieder, an investment manager, licensed professional, and veteran analyst, founder and manager of the "Machpil Revach" (Profit Multiplier) information service.

Out of the huge wave of IPOs in the years 2020-2021 on the Tel Aviv Stock Exchange, very few companies have delivered the goods and created real and lasting value for shareholders. One of the most prominent is the medical-aesthetic device company Sofwave Medical. This field has historically been considered challenging and full of disappointments for local investors, but Sofwave has completed an impressive transition in recent years from the status of a "dream" company in the research stages to a mature, growing, and profitable commercial platform.

Sofwave is based on a smart and stable business model that combines hardware and consumable services. The company sells to clinics and doctors the SUPERB system based on parallel ultrasound (protected by global patents) at a price of 85-100 thousand dollars per device (at a gross profit of about 60%), and alongside this, it charges a current payment for "pulses" - a software component consumed in every treatment and enabling the operation of the device at a price of about 1 dollar per pulse, and at a gross profit of almost 100%. The technology is branded as a fast, painless treatment with no recovery time, which is a preferred alternative to invasive and painful treatments with needles and radio frequency energy.

Sofwave Medical

• Field of activity: Medical equipment for skin tightening and muscle strengthening

• Company headquarters location: Yokneam

• Year of establishment: 2015

• Founder and Chairman: Shimon Eckhouse

• CEO: Louis Scafuri

As the company's installation base expands and doctors perform more treatments, the model acts as a cash flow flywheel: for example, revenues from usage fees grew in the second quarter of this year by 52% and reached about 13.9 million dollars. Alongside the analysis of the company's costs, it is also appropriate to present the impressive ROI (return on investment) of the clinics: a pulse purchased from the company for about 1 dollar is sold to the end patient for about 8-10 dollars, which generates an especially fast ROI for clinics of only 3-6 months, and accelerates the rate of system adoption. This model allows recurring pulse sales, alongside system sales, to establish an overall gross profit margin of about 76.5% for the entire company.

An "injection" of network presence

Another significant growth engine comes from the revolution of weight loss drugs such as Ozempic and Wegovy. Rapid weight loss creates skin laxity alongside muscle mass loss for millions of patients. Sofwave offers a full response to the phenomenon through a combination of skin tightening treatments and the Pure Impact VIP system for stimulating and rebuilding muscle mass. The combination allows doctors to offer a combined face-body treatment in the same visit and significantly increase the income from each patient.

International exposure received a huge boost when the Kardashian sisters - Kim and Khloe - shared their enthusiasm for Sofwave products on social networks. This led the share of discourse about the company to 54% in the category, doubled the presence in AI-based search engines, and generated direct demand from consumers so that 45% of system sales in the USA originate from marketing leads.

Behind the success stands an experienced management with a proven track record of exits: founder and chairman Dr. Shimon Eckhouse, Chief Technology Officer Ariel Sverdlik, and CEO Louis Scafuri. Under their leadership, Sofwave has presented a fifth consecutive quarter of profitability (net profit of about 2.5 million dollars in the second quarter), with a cash reserve of about 38.8 million dollars and no debt. The company is currently traded at a value of 1.25 billion shekels.

Growth engines and risks

Looking ahead, the company has a series of growth engines that will be used for expansion abroad. Among these are regulatory adjustment procedures ahead of commercial entry into China, through the distribution company HTDK, expansion in Japan through the company JMEC, and penetration into Brazil as well. The business moves have received an expression of broad institutional confidence from Migdal, Meitav, and Phoenix - who have become interested parties and prominent holders in Sofwave.

Market analysts estimate that the company's revenues will grow to about 118 million dollars in 2026 and to about 155 million dollars in 2027, with a net profit of about 20 million dollars - which derives an attractive projected P/E ratio of about 21 for the year 2027.

Alongside the positive momentum, the company faces increasing competition or the entry of disruptive technology, to which are added execution risks and the rate of commercial penetration. In addition, there are exogenous risks such as changes in regulation and FDA policy, or exposure to safety events in treatments, which could harm reputation and demand - and affect the company's valuation.

The bottom line

Sofwave Medical is, in my opinion, an exceptional example of a technology growth company that has managed to establish a business model with high recurring revenues and exceptional profit margins. The combination of experienced management with proven results, protected clinical differentiation, a tailwind from the weight loss drug revolution, growth engines in Asia, and a strong balance sheet without debt - makes the company one of the highest quality fundamental investment opportunities that have emerged in the Israeli capital market in recent years.

The opinions and conclusions presented in the article are an expression of the author's opinion only. The above should not be seen as a recommendation or advice, and it is not a substitute for personal investment advice that takes into account the needs and data of each person.