Sensus Healthcare, Inc. (SRTS) stock intrinsic value fair value estimate & owner earnings analysis

Sensus Healthcare makes superficial radiation therapy (SRT) systems, chiefly the SRT-100 family, that let dermatologists treat basal and squamous cell skin cancers and keloids without surgery. It has installed 955 units in 21 countries, mostly in the United States. It sells systems outright, rents them, and places them under its Fair Deal Agreement, in which Sensus supplies the equipment, physics oversight and a radiation technologist in exchange for a share of the revenue. The business has had two distinct periods. From 2016 to 2020 it sold $10 to $27 million a year to a broad base of practices and did not earn money for its owners: owner earnings ranged from about -$0.02 to -$0.43 per share. From 2021 to 2024 one U.S. customer bought heavily, reaching 73% of 2024 revenue, and owner earnings were $0.29, $0.62, $0.00 and $0.42 per share. In 2025 that customer fell to 52% of revenue, units sold fell from 115 to 70, and owner earnings were -$0.58 per share. The company's annual report says part of the 2025 drop came from customers delaying purchases after new billing codes were proposed in July 2025, to buy under the new codes in 2026. In 2026 the largest customer has bought nothing; revenue was $5.7 million in the first half against $15.7 million a year earlier. Sensus sued a customer, SkinCure Oncology, in March 2026 over unpaid product and settled in May without disclosing terms. What is different now. For the first time SRT has its own dedicated billing codes, effective January 1, 2026, and Medicare's payment agency has proposed a further 26% increase in the hospital delivery code. For years practices bought SRT without certainty about how it would be paid; that uncertainty is now largely removed. Regional Medicare coverage rules can still limit which patients qualify. How we measure earnings. We start from reported profit, add back depreciation and other non-cash items, and deduct the equipment spending needed to stay in business. Warranty repairs, lease costs and bad debts are treated as real operating costs. We exclude the 2022 gain from an asset sale and the 2026 write-off of a deferred tax asset, which is an accounting entry rather than cash. Our previous figures were prepared on a different basis and are not comparable. The balance sheet. At June 30, 2026 Sensus held $15.2 million of cash, including $2.2 million pledged against a new $15 million credit line from CNB that allows only $2 million of borrowing in its first year, and it owed nothing. It also held $18.5 million of inventory, several times the $2 to $4 million it carried in 2021 and 2022. That inventory is cash already spent that returns only as systems are sold or placed. The arithmetic that matters. Operating costs are running near $16 million a year. At the gross margins the company has earned, it needs roughly $26 to $27 million of annual revenue to break even, and about $40 million, the level of 2022 and 2024, to earn what it did in its best years. Without its largest customer, revenue is running at roughly $13 to $14 million. Base case, about $1.00 per share. Revenue recovers to about $26 million by 2029, the level Sensus reached in 2018 and 2019 by selling to many practices before the codes existed and under less favorable billing. We do not assume the former largest customer returns. At that level and today's cost base the company roughly breaks even, losing about $3.5 million in the second half of 2026, $4.5 million in 2027 and $2 million in 2028. Surplus inventory of about $13.5 million is recovered at about 90% of cost over 2027 to 2029 as volume consumes it. We do not yet credit growth beyond the 2018-2019 level: the codes should help, but nine months of results do not yet show it. First-quarter sales to customers other than the largest one rose 26% to $3.4 million; second-quarter sales were distorted by eight units whose recognition slipped into the third quarter and by placements whose revenue is spread over time. The business is worth about $16.5 million after these losses, with no debt. Bull case, about $4.64 per share. The codes widen adoption and/or Sensus again wins a large account, as it did once before, and revenue returns to about $40 million. Owner earnings reach about $0.40 per share from 2028, close to 2024, hold for ten years and fade over the following five, and inventory converts close to cost. Bear case, $0. The codes do not translate into orders, for example because regional coverage rules restrict use, and revenue stays near $14 million. Losses continue at the 2025 to early-2026 pace of roughly $9 million a year before cuts catch up, totaling about $24 million through 2029, and surplus inventory recovers only about a third of cost. The cash runs out around 2028 and new equity has to be raised, leaving existing shareholders little or nothing. With no debt, this is a case of running out of cash, not of owing more than the business is worth. Margin of safety price, $0.60, and only once two consecutive quarters each show at least $6 million of revenue from customers other than the former largest customer. We are not confident in any earnings level today: the company's only profitable years depended on one customer who has stopped buying, and before that customer it lost money every year. The codes are the best reason to think that can change, but the evidence is only beginning. The worst plausible outcome is losses outlasting the cash, followed by a heavily dilutive raise; having no debt and a large stock of finished goods helps but does not prevent it. The things we are most likely to be wrong about are how quickly the codes bring in orders, how fast costs come down, and what the inventory is really worth. Wrong on the first in the good direction, the shares could be worth several times the base case; wrong on the other two, they are worth little. The company pays no dividend, so any return depends on the business recovering. Once two quarters at that revenue level show the business is at break-even, it should still hold roughly $8 to $10 million of cash. At $0.60 a share, about $10 million for the whole company, the price is roughly covered by that cash, with the inventory, the installed base, the Fair Deal contracts and the upside from the codes carried at no value. That is why the cases imply a 20% annual return from that price even if the recovery is slow. What would make this wrong. Upside: the codes and the proposed hospital payment increase drive a broad pickup in orders, or the former largest customer resumes buying. Downside: coverage rules limit use, inventory proves hard to sell, or cost cuts fail to keep pace.