Owlet: Back From Purgatory, Market Underappreciates Turnaround

Digital health company Owlet, Inc. (OWLT) is demonstrating a strong rebound after regaining FDA approval for its core infant monitoring products, which were previously halted. The company reported robust Q1 2025 revenue growth of 43% year-over-year to $21.1 million, with gross margins improving to 53.7%, and raised its full-year guidance to $91-$95 million. While Owlet achieved EBITDA break-even in Q1, it still faces an operating loss and challenges from high SG&A and impending tariff impacts on margins. Despite these operational hurdles, its current valuation at a 1.26 Price-to-Sales ratio suggests the market may be underestimating its growth potential, driven by renewed FDA legitimacy, a new recurring subscription service, and expanding healthcare market penetration.

Analysis

Owlet, Inc. is at a significant inflection point, demonstrating a strong recovery following the reinstatement of its core products after receiving FDA approval. The company's Q1 2025 results underscore this rebound, with revenue climbing 43% year-over-year to $21.1 million and gross margins expanding by 930 basis points to 53.7%. This performance led to management raising full-year 2025 revenue guidance to $91-$95 million. Despite achieving EBITDA break-even, Owlet remains unprofitable with a Q1 operating loss of $2.7 million, primarily due to elevated SG&A expenses, which constituted 52% of revenue in the quarter. Headwinds persist, as management anticipates gross margins will contract to a 46-50% range for the full year due to tariff impacts. Key growth catalysts include the new Owlet 360 subscription service, which rapidly acquired 48,000 users, the expansion of international sales which grew 104% in Q1, and penetration into the healthcare channel with its prescription-based BabySat device. However, significant risks remain, including high customer concentration, with the top three customers accounting for 57% of sales, and potential share dilution from outstanding warrants. The stock's valuation, at a Price-to-Sales ratio of 1.26, appears low relative to its growth trajectory, suggesting the market has not fully priced in its turnaround potential.

Key Decisions for Investors

• Given the strong revenue acceleration post-FDA approval and low valuation, investors could view OWLT as a high-risk, high-reward turnaround play, but should monitor execution closely.
• It is critical to track the company's progress in reducing SG&A as a percentage of revenue and managing the guided gross margin compression, as these are prerequisites for achieving sustainable profitability.
• Pay close attention to the adoption rate and revenue contribution from the new Owlet 360 subscription and the development of healthcare partnerships, as these are key catalysts for future growth and margin expansion.
• Investors must factor in the considerable customer concentration risk and the potential for future share dilution from warrants, which could limit stock price appreciation even if operational targets are met.