InMode (INMD) is a medical aesthetic devices company. The company sells minimally invasive aesthetic medical products for procedures, such as liposuction with simultaneous skin tightening, body and face contouring, skin rejuvenation treatments, and more.
It has proprietary radiofrequency assisted lipolysis and deep subdermal fractional radiofrequency technologies. We are bullish on the stock.
People that have followed our work in the past may have seen our past bullish ratings on INMD stock. We were mainly buyers in mid-2020 to mid-2021. When the share price started really going parabolic in late 2021, we trimmed a bit of our position.
Then, the market dipped, and so did INMD stock. We weren’t rushing to buy the dip, though, until we figured it was starting to get too oversold. We now believe it is starting to get overextended to the downside, and we have started buying again in the $37-$41 area.
InMode’s Recent Financial Results and Guidance
InMode combines high growth and high profitability without the high valuation multiples that some high-growth stocks still carry today. It has also shown consistent performance, with revenues and profits growing in a straight line since as far back as the data goes (2016).
In Q4 2021, INMD’s revenue grew 47% year-over-year to $110.5 million, and revenue for the full year grew 73% year-over-year to $357.6 million. GAAP net income grew 46% in the fourth quarter, reaching $52.7 million.
Should we expect very high growth rates like that again for 2022? Probably not. 2021 was a particularly great year for INMD because of the pent-up demand that COVID-19 created with lockdowns in 2020.
However, the company is still projected to grow nicely. For 2022, INMD expects revenue to be between $415 million and $425 million. Taking the midpoint of that range implies 17.4% revenue growth.
That may not seem like much for a company that we are calling “high growth,” but we are actually expecting revenue growth to come in at a higher number.
This is because INMD’s management is always conservative with its estimates (and it is well aware of this). INMD beat EPS estimates in nine out of the past 10 quarters, and beat revenue estimates 10 out of 10 times.
Therefore, it is reasonable to expect somewhere closer to 20% revenue growth or potentially higher. For the full 2022 year, INMD estimates EPS to be between $2.06 to $2.11.
InMode’s Profitability Metrics
We love highly profitable companies. Let’s discuss just how profitable INMD is.
InMode’s gross profit margin is currently 85% and has been hovering between 83% to 87% since 2017. It is also expected to be between 84% and 86% for 2022 despite high inflation.
High gross profit margins leave more room for high net income and free cash flow margins, which we will discuss as well. This metric is so important to management that they will not invest in anything that they think will have lower margins than that.
Here’s a quote from the CEO in the Q3 conference call that talks about how INMD navigated inflation and how important margins are to him:
“One issue we have with the shipping and the logistics, the prices of sending either by sea or by air in the last year went up four times, and this is why right now we are shipping mainly in containers and not by air in order to save money. All this is done in order to maintain the 85% gross margin, which for us, as I said before is a must, it is not nice to have.”
The company’s ability to navigate supply-chain issues is truly impressive.
Moving on from gross margins, INMD’s 2021 net income margin and free cash flow margin came in at 46.1% and 48.6%, respectively.
When looking at the company’s cash return on invested capital (CROIC), it currently sits at 51.4% for the past 12 months.
For those who don’t know, CROIC is calculated as free cash flow ($173.9 million) divided by average invested capital ($338.5 million). This figure has consistently been high. The lowest CROIC was 36% in 2020 (due to COVID-19).
In financial theory, if a company has returns on capital greater than its weighted average cost of capital (WACC), then it is considered a value creator. Since INMD’s WACC is 8% and its CROIC is 51.4%, it is creating tremendous amounts of value for shareholders.
InMode: Growing Its Recurring Revenue
INMD is mainly a hardware company, which may turn off some people who like recurring revenue. Eighty-nine percent of Q4 sales came from hardware, and only 11% came from consumables and services (the recurring part). However, its recurring revenue as a percentage of revenue has been growing.
“As we grow, all of our new platforms are designed to have disposables,” said the CEO on the Q4 call. “We will not design additional platforms without any disposables. So in the future, once the install base will get, I would say to 20,000 or 25,000, I assume that the disposables will grow to a neighborhood of I would say 14%-15% of the total revenue.”
Later in the call, he went on to say: “As a young company with only 11,000 systems installed, the revenue coming from the disposable is growing, and it’s growing. It went from 10% to 11%, but don’t expect that to go to 20% over three quarters. It will go slowly, but it will go nicely.”
INMD stock is trading at a good price, in our opinion. If you take management’s $2.06 to $2.11 EPS guidance for 2022, then it is currently trading at around a 19.7x forward P/E ratio.
By 2023, this multiple is expected to drop to 17.2x, with an EPS of $2.39. Remember, though: INMD usually beats estimates, so these numbers may prove to be conservative.
Wall Street’s Take
Turning to Wall Street, INMD has a Strong Buy consensus rating based on three Buys assigned in the past three months. The average InMode price target of $84.67 implies 106% upside potential.
INMD is a very profitable company that is growing at a respectable rate and has been mostly unaffected by global supply-chain issues.
Its valuation is much cheaper than many “hype” growth stocks out there, and analysts seem to agree that it is undervalued as well.
It’s important to note that the stock is still in a downtrend, so there can be more short-term downside ahead. However, for long-term investors, the prospects look great.
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