Last week, I bought shares of Dexcom (DXCM -0.42%) and Inari Medical (NARI -1.19%). But while it's obvious to me that Dexcom is an incredibly successful stock, having run up almost 3,400% since its IPO 15 years ago, it still hasn't garnered a lot of investor attention.

If Dexcom is not as well known as it should be, Inari Medical is a complete unknown. The small-cap medical device maker just went public in May. Inari is focused on minimally invasive treatments for pulmonary embolism (PE) and deep vein thrombosis (DVT). The company is already profitable, and is growing revenues by 152% on a quarterly basis. And yet, Inari is under-covered in financial media, and there has been almost no hype around the stock, despite its 50% rise so far in 2020. Let's dig in to find out why investors should consider scooping up shares of these two under-the-radar stocks too. 

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Image source: Getty Images.

1. Recurring revenue is Dexcom's friend

A huge reason why Dexcom has enjoyed so much success is its subscription-based business model, which generates reliable recurring revenues. Individuals (or their insurance companies) subscribe to Dexcom's services, effectively making Dexcom the medical device version of a Software-as-a-Service (SaaS) company. The market is often willing to pay a higher price for this type of stock, which has predictable revenue streams. Dexcom's Q2 2020 revenue grew 34% from the same quarter of 2019, reaching $451.8 million. 

Dexcom specializes in continuous glucose monitoring (CGM) systems for patients with diabetes. Patients wear a tiny wireless monitor on their body -- the newest device is expected to be about the size of a nickel -- that constantly tracks blood sugar levels. This has proven far superior to the pin-prick method for patients with diabetes, because patients have access to far more detailed and regular health data than they do with intermittent readings.

With Dexcom's system, patients can check their readings on a smartphone anytime they want. In one study, 90% of people reported that real-time CGM contributed to a healthier lifestyle, and 87% of people changed their food choices based on CGM data. The wireless system allows other people to monitor readings as well, including doctors and family members. Perhaps most importantly, the system sends an alert when a patient's blood sugar is at dangerous levels.

Dexcom is well-poised to capture a large portion of the massive current and future market for diabetes therapies and glucose monitoring; in the U.S. alone, 34.2 million people (one in 10) have diabetes, and one in three adults have pre-diabetes.

2. Inari has already made a name for itself

Inari Medical markets two new devices that treat blood clots by removing the clot itself. Historically, doctors would prescribe blood thinners and hope that the body would eventually loosen the clot on its own. That highly conservative treatment has been the norm, because surgical procedures were less than optimal and could be dangerous. But Inari's minimally invasive devices are helping solve old problems. As one Inari doctor put it: "It really is becoming the standard of care for massive and even sub-massive proximal clots." 

Inari's ClotTriever is a non-surgical device intended for use in the peripheral vasculature system. The device removes soft emboli and thrombi from veins. FlowTriever is the second non-surgical device produced by Inari. This system is designed to treat PEs. PEs are clots that have broken free of the legs and become lodged in the lungs, and can quickly turn into dire health situations.

Almost 300,000 people die from blood clots in the U.S. every year. It is the third most common vascular diagnosis in the U.S., after heart attack and stroke.

While Inari does not have subscription revenue streams like Dexcom, the company also enjoys a lot of recurring revenue. This is because its devices are disposable and have to be replaced after use. Once a doctor is trained on how to use the device, the company can expect recurring revenues from the future procedures to be performed by that doctor.

In the first quarter, 2,400 procedures were completed using Inari's devices, and in the second quarter (in the middle of a pandemic), 2,500 procedures were completed with Inari's devices. The company collects about $9,100 in blended revenue per procedure. In Q2 2020, total revenues came to $25.4 million, up from $10.1 million in the prior-year quarter. 

Another opportunity has emerged for Inari since the start of the pandemic: Many COVID-19 deaths have now been attributed to blood clots. A professor of medicine at Cornell, Dr. Jeffrey Laurence, recently reported that many COVID-19 patients in the ICU "are developing blood clots, including clots in small vessels, deep vein thromboses in the legs, clots in the lungs, and stroke-causing clots in cerebral arteries." And blood thinners do not work on all of these patients.

While Inari's medical breakthrough is not yet widespread, it does appear to be a significant improvement over standard therapy for blood clots. Perhaps one day, Inari will dominate its niche, just like Dexcom dominates in diabetes. It's certainly off to a good start.