Neuronetics Gross Margin Squeeze Tests Low Valuation Thesis

Neuronetics is growing revenue. Its gross margin is shrinking, a combination that puts pressure on the stock's low valuation. The company's recent filings show a widening gap between top-line gains and the cost of goods sold. That gap has drawn attention from investors who see the stock as cheap on a revenue multiple.

The low valuation acts as a cushion. It only helps if the margin trend reverses. If the squeeze continues, the stock could reprice lower. The next quarterly report, due in October, will show whether management has addressed the cost structure.

A recovery in gross margin above 50% would support the thesis. A further decline toward 40% would argue for deeper cuts to estimates. The company reports earnings on Oct. 28.