Inspire Medical Systems, Inc. (INSP) stock intrinsic value fair value estimate & owner earnings analysis

Inspire Medical Systems sells an implanted nerve stimulator (Inspire IV, and since May 2025 Inspire V) for moderate to severe obstructive sleep apnea in patients who cannot use CPAP. In 2025 revenue was $912 million, up 13.6%, with an 85.4% gross margin. About 96% of sales are in the United States. What the business earns. We measure earnings as operating cash flow, less swings in working capital, less stock compensation (a real cost), less the part of capital spending needed just to keep the business running. On that basis owner earnings were negative from 2020 through 2023 (roughly minus $1.15 to minus $2.16 per share) while the company scaled up, turned positive at $0.61 per share in 2024, and reached $1.31 in 2025. The reported 2025 net income of $145 million includes an $89 million non-cash tax benefit that we do not count. Working capital absorbed $87 million in 2025, mostly a $65 million inventory build for the Inspire V launch, and we exclude that swing. Stock compensation of $130 million was larger than the company's entire owner earnings, which is the main reason per-share earnings are thin relative to the reported profit. We used only 2024 and 2025 to set the earnings level, because earlier years describe a loss-making build-out; their median is about $0.96 per share. We did not use the 2025 figure alone, since the first half of 2026 does not confirm it. What the first half of 2026 shows. Revenue was $405 million versus $418 million a year earlier (first quarter up 1.6%, second quarter down about 7.6%) and the company reported a net loss of $11 million. Cash from operations was $36 million. The filings state that some patients and physicians delayed treatment awaiting Inspire V or while trying GLP-1 drugs, and that billing-code confusion over Inspire V could cut the surgeon's professional fee by roughly 10% to 50% if a reduced-service modifier is applied, which the company says may make physicians less willing to perform the procedure. Growth path check: owner earnings grew from $0.61 to $1.31 in 2025, but we assume 0% growth from here, below that trailing rate, because revenue is now falling. Base case, about $8 per share. Owner earnings hold at about $0.96 per share for twelve years, then the story ends. We credit no growth: expansion of the patient market, Inspire V share gains and international growth (up 25.6% in 2025 but only $40 million of sales) are hoped-for, not secured. What we do credit is the durability of what exists: an approved implant with a large patent portfolio, 85% gross margins and an established reimbursement pathway. Nothing we can evidence extends earnings beyond year twelve. Bear case, about $0.80 per share. Sales keep shrinking from the second-quarter pace as GLP-1 use, surgeon-fee cuts under the modifier and competition from Nyxoah (a direct competitor, with patent suits running in both directions in the U.S. and Europe) take hold. With stock compensation running at roughly $120 million a year, owner earnings fade to zero within about three years. The case also carries the Department of Justice civil investigative demand received in January 2025 under the False Claims Act and shareholder class actions over statements about the Inspire V launch; the company reports no loss recorded and cannot estimate one. Bull case, about $15 per share. The 2025 level of $1.31 per share holds for twenty years, meaning the Inspire V launch problems prove temporary and the company's own patent and pricing position continues to hold. No growth beyond that is credited. Margin-of-safety price. Because earnings are small relative to stock compensation, revenue is turning down, and litigation and reimbursement risk are unresolved, the margin-of-safety price is about half of our base value, roughly $4 per share, and applies only once revenue is growing again. Cash and investments of $404.6 million at the end of 2025 are not added to these values, since our method values the earnings stream only. Whether the Inspire V billing code is resolved without a large fee cut, and whether the second-quarter decline was a launch-transition effect or something lasting, are what would most change this view. The first-half 2026 working-capital detail could only be partly reconstructed from the quarterly data, so we relied on the annual figures for the earnings level.