CARL

We rate CARLSMED, INC. (CARL) as a Reduce with a composite score of 40.0/100 at a current price of $12.95. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in stability (48th percentile) and quality (38th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (31th percentile) and value (33th percentile) tempers our overall conviction. We assign a Narrow Moat rating (42/100), High uncertainty, and Poor capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; sustainability of the current growth rate; the path to profitability. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

CARLSMED, INC. holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 40.0/100 places it at rank #3535 in our full 7,333-stock universe. At $282M in market capitalization, CARLSMED, INC. is a small-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 98%, though momentum at the 31th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 76% (+33.4pp vs sector) narrow to operating margins of -69% (-70.4pp vs sector) and net margins of -65.2%, yielding a gross-to-net conversion rate of -86%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $12.95, CARLSMED, INC. is trading at a premium to fundamental value. Our value factor score of 33/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at P/B of 3.2x, P/S of 6.5x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a High uncertainty rating to CARLSMED, INC.. Key risk factors include elevated market sensitivity (beta of 1.56), current negative profitability (net margin -65.2%). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.56); current negative profitability (net margin -65.2%). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 48th percentile and quality factor at the 38th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 76% provide a buffer against cost pressures; conservative leverage (14% D/E) limits balance sheet risk. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate CARLSMED, INC.'s capital allocation as Poor. Key concerns include low returns on equity (-32.0%), negative profitability, weak asset returns (ROA -25.3%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — CARLSMED, INC. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, CARLSMED, INC. receives a Reduce rating with a composite score of 40.0/100 (rank #3535 of 7,333). Our quantitative framework assigns a Narrow Moat (42/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 37/100.

Our analysis does not support a constructive view on CARLSMED, INC. at this time. The combination of the current quantitative profile, high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.