-$7.60
-$1.90
bear -$7.60
base -$5.50
bull -$1.90
margin of safety $0.00
market price* $59.18
Business condition attached to the margin of safety
At least three consecutive quarters in which operating cash flow, after subtracting stock-based compensation and capital spending, is positive without borrowing or share sales to fund it.
Establishment Labs makes and sells Motiva silicone breast implants and related devices for aesthetic and reconstructive surgery. It manufactures in Costa Rica and sells in the United States, Europe, the Middle East, Latin America and Asia. Substantially all revenue comes from Motiva implants. The U.S. Food and Drug Administration approved Motiva implants in September 2024, allowing the company to sell its implants in the United States. The business is growing fast but has never generated cash on our measure of owner earnings (operating cash flow, less swings in working capital, less stock-based pay, less the capital spending needed to stand still). Owner earnings per share were about minus $1.34 in 2021, minus $1.89 in 2022, minus $3.60 in 2023, minus $2.38 in 2024 and minus $1.80 in 2025. The median of those five years is minus $1.89. We use the five years since 2021 because the business has been in the same investment phase throughout; 2019 and 2020 could not be put on the same basis. In 2025 revenue rose 27.2% to $211.1 million and gross margin improved to 69.3% from 66.0%, but selling, general and administrative costs rose 18% to $165.1 million and operating expenses of $185.3 million still exceeded gross profit of $146.3 million. Cash used in operations was $50.9 million. Losses narrowed in the first half of 2026: revenue was $127.4 million against $92.7 million a year earlier, and cash used in operations was $20.9 million against $39.5 million. Debt matters here. At the end of 2025 the company owed $246.4 million to Oaktree against $75.6 million of cash. Interest expense was $24.5 million in 2025. The loan was due April 26, 2027, but on April 30, 2026 the company announced a refinancing into a new $300 million facility with $265 million drawn and a five-year term to 2031, so there is no near-term maturity. We do not deduct debt from the value, because the interest is already inside owner earnings, but the debt is why the bad outcomes below are bad. How we built the three cases. We credit only what the filings already show. The one demonstrated trend is that the cash burn has been shrinking: owner earnings improved from minus $67.0 million in 2024 to minus $53.3 million in 2025, a 20% narrowing, and the first-half 2026 cash burn was about 47% lower than a year earlier. Year one of our base case assumes a 20% narrowing, the same as the trailing actual rate. We do not credit a return to profit, further margin expansion, or continued sales growth, because none of those has yet produced positive owner earnings and each depends on events that have not happened. Management said when announcing the refinancing that it expects positive free cash flow in the second half of 2026; that is a target, on a different basis from ours, and we left it out. Share count is held at the 2025 level of about 29.6 million, so future dilution, which has been material, is not included. All cases are discounted at 6%. Base case, minus $5.50 per share. The cash burn keeps shrinking by 20% a year from the 2025 level of minus $1.80 per share but never reaches break-even, because nothing we can name and verify takes it there. The present value of those continuing losses is about minus $5.5 per share. Bear case, minus $7.60 per share. The narrowing stops at the 2025 level of minus $1.80 per share until the new loan matures in 2031, and we assume nothing is worth anything after that, since the company would then need new funding it has not shown it can generate itself. Five years of losses at that pace come to about minus $7.6 per share. Bull case, minus $1.90 per share. The burn shrinks by 45% a year, close to the roughly 47% narrowing seen in the first half of 2026 against the prior year, and is still not credited with ever turning positive. That leaves a present value of about minus $1.9 per share. What these numbers mean. All three are below zero. A negative figure means that on the evidence to date the shares are supported by no owner earnings; it is the present cost of funding continued losses. In none of the cases we can support does the business earn enough to cover its costs, so any real value depends on a future turn to profit. That upside is possible, since gross margin is near 70% and revenue is growing quickly, but it has to show up in cash results before we count it. What could prove this wrong. Sustained positive operating cash flow after stock-based pay and capital spending, which management is targeting for the second half of 2026, would make all three cases too low. Selling costs growing more slowly than sales would be the most direct route to that. One item we could not reconcile from the filings is the 2019 and 2020 stock-based pay, which is missing from the data, so those years are excluded from the median.