Inspire Medical Systems (INSP), a maker of medical devices treating sleep apnea, revealed the U.S. Attorney’s office in its home state of Minnesota is investigating potential fraud at the company.

Inspire says on January 17, 2025 it received a civil investigative demand (CID) from the Department of Justice (DOJ) as part of a federal investigation probing allegations of fraudulent claims of government payors, including potential illegal kickbacks.

Inspire also disclosed in its latest annual report:

“The CID requests information relating to the marketing, promotion and reimbursement practices associated with our products.”

Notably, rather than boilerplate language indicating plans to vigorously defend itself in the event of legal action, Inspire says only that it is cooperating with the government’s investigation.

Last year, DuDil highlighted how Inspire is subsidizing the cost of its Chief Executive Officer Tim Herbert’s corporate stadium suite despite diluting shareholders three times since going public in 2018.

Shares are down 7% since then.

With an Enterprise Value (EV) of approximately $5 billion, Inspire is priced as if it will grow annual sales to more than $16.5 billion, up from an estimated $1.1 billion in 2025. To justify its current share price of $180.99 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Inspire must:

—Grow sales 35% annually for the next decade, significantly faster than the company’s estimated 2025 and 2026 sales growth of 18.2% and 17.3%, respectively
—Immediately increase NOPAT margin to 9.7%, significantly higher than our 3-year average estimate of (2.65%)
—Increase Invested Capital (IC) Turns to 1.7 from our 3-year average estimate of 1.5

Notably, the current share price also implies Inspire increases Return on Invested Capital (ROIC) to 16.5% from our 3-year average estimate of (5.57%):