CARLSMED, INC. (CARL) stock intrinsic value fair value estimate & owner earnings analysis

Carlsmed designs and sells aprevo, a personalized spine-implant platform: AI-assisted software plans a custom surgical approach for each patient, and a patient-specific interbody implant is then built to that plan by third-party contract manufacturers. The company launched aprevo for lumbar fusion in 2021 and received FDA clearance for a cervical version in November 2024, with broader cervical commercialization beginning in 2026. Revenue is entirely U.S.-based today, paid for by Medicare, Medicare Advantage and commercial insurers. The business is growing quickly - revenue rose from $27.2 million in 2024 to $50.5 million in 2025, and grew a further 57% in the first half of 2026 versus the prior-year period - but it is not yet profitable. It lost $29.6 million in 2025 and used $29.0 million of cash in operations, following a $25.5 million operating cash use in 2024. Gross margin has been stable and healthy - around 74% in 2024 and 75% in 2025 - reflecting an asset-light model in which Carlsmed does not own manufacturing plants. The losses instead come from a large, and still-growing, spending base in sales and marketing, R&D and administration, which cost more than total revenue in both years, although that spending did shrink from 163% of revenue in 2024 to 136% of revenue in 2025 as the fixed costs of the business (including those of being newly public) were spread over more sales. Because this is a young, unprofitable company, its value depends heavily on what its economics look like years from now, and we have very little history to lean on - only two completed fiscal years, both showing losses. We have built three distinct paths forward rather than one forecast: - Bear case: growth cools sharply as larger, deep-pocketed competitors (major spine-device makers) push their own personalized-implant offerings, and the extra Medicare payment now available for the newer cervical product - which the company itself describes as available only in the first few years after a technology reaches the market - rolls off without being replaced. Management is forced to hold spending roughly flat in dollar terms to preserve cash, so losses shrink slowly and the business hovers near breakeven for years without ever clearly turning a profit within the next decade. - Base case: growth continues to decelerate along the trend already visible in the filings (roughly 86% growth in 2025, already down to 57% in the most recent reported half-year), spending discipline improves gradually - not heroically - and the company crosses into modest operating profitability around year six or seven, reaching roughly a 10% operating margin by year ten. - Bull case: the company continues adding new surgeons and deepening use among existing ones at close to its recent pace for longer - growth stays well above 20% for several more years before gradually settling into the low teens by year ten - and the fixed-cost leverage already visible in the 2025 results continues, taking Carlsmed to a solidly profitable, meaningfully larger business with operating margins in the mid-20s by year ten - a strong outcome, but one built from levers the company has already shown it can pull, not a windfall. In all three cases we have assumed the earning power reached by year ten persists for a further period rather than growing indefinitely, reflecting Carlsmed's patent estate (45 issued patents as of the 2025 fiscal year-end, expiring between 2037 and 2045) and its accumulating library of surgical-outcomes data, both of which support the platform's durability without requiring us to assume further, unproven growth. A few accounting choices are worth noting. Stock-based compensation, which is a real cost to shareholders, has been treated as an expense throughout rather than added back, consistent with how we value every company. We have also been conservative about certain non-cash charges unique to this business - provisions for slow-moving or unusable custom-made inventory, and for uncollectible hospital receivables - by treating them as ongoing costs of the business rather than crediting them as free cash in our forward projections, even though accounting rules technically allow them to be added back. We tested the assumption that spending will keep shrinking as a share of revenue against the company's own explanation for its cost growth, which cites both variable, sales-linked costs and fixed costs (R&D, compliance, being public); the fixed portion supports some of the assumed improvement, while the variable portion limits how far it can go, which is why our base case is measured rather than aggressive. The company holds $109.9 million in cash, cash equivalents and short-term investments as of the end of 2025, against $15.6 million of term debt, with principal repayment on that loan not due to begin before October 2027 (potentially 2028 if certain revenue milestones are met). That liquidity appears sufficient to fund the business through the disappointing scenario described above without necessarily requiring new capital, though a repeat of that outcome for several years running would leave little cushion. Putting these cases together, a substantial discount to what the business is likely worth is required, given how much of the value depends on a decade of continued execution that has not yet been demonstrated, and given that even our median case shows little more than a break-even outcome on its own. The margin-of-safety price is near $1.00 per share.