InMode Surgical ($INMD) — A Strong Buy at $32/share
With its IPO just a little over a year ago, InMode Ltd is a young HealthTech company ran by its founders that develops minimally-invasive surgical aesthetic and medical treatment solutions in the United States. Its revolutionary and patented products and solutions are designed to address the need for minimally-invasive, effective, and affordable treatments in areas including face and body contouring, medical aesthetics and women’s health. Given its current competitive moat, attractive financial position, and enormous potential for growth, I believe InMode Ltd ($INMD) is poised to be the next leader in the medical aesthetic space and is a great long-term investment at its current price.
“InMode devices are becoming a standard item in cosmetic surgery practices around the country. This is because InMode Aesthetic provides laser tools that are safe, effective, and easy to use. Their products accomplish the same goals as other laser technologies but with less pain, less discomfort, and faster results.” -Dr.Haitham Masri
Key Metrics and Financial Snapshot:
- Ticker symbol: INMD
- Currently trading at: $31.81
- Base target price: $48.35, a 41% potential return
- Market capitalization: 1.08B
- EPS Diluted (TTM): 1.24
- 56% YoY growth (2018–2019), $156.4M in revenue in 2019
- PE ratio: 26
- PB ratio: 5.3
- Consistent gross profit margin: 85%
- Dividend yield: 0%
- Free Cash Flow: 1.1M
- The company is currently operating in 53 countries, but derives the majority of its revenue from the U.S.
- Medical aesthetics market valued at $10.5 billion with a projected market growth of reaching $22.2 billion by 2025 growing at a CAGR of 11.5% (2018).
Affects of the pandemic
In their second quarter 2020 results, InMode reported revenues of $30.8 million, a decrease of 21% as compared to the second quarter of 2019, which was primarily due to the impact of the global COVID-19 pandemic. However, the gross profit margin remained around 85% and the stock has rebounded 110% since March lows.
Additionally, InMode management recently announced a share repurchase program of up to 1 million ordinary shares. “Given our profitable expansion, we view our shares as an attractive investment opportunity. InMode will continue to leverage its strong cash flow and balance sheet to support future growth and maximize shareholder value,” noted Yair Malca, InMode’s Chief Financial Officer.
Competition
InMode Ltd currently faces medium competition from companies such as Allergan, a global pharmaceutical company with over $16B in yearly revenue and Sisram Medical Ltd, an Israeli company that develops energy-based surgical and medical aesthetic solutions.
However, InMode’s partnerships and product reviews from physicians, patented technologies, and a high gross profit margin of 85% represent a significant moat that has yet to be hindered by these competitors. Wary investors could continue to monitor the stock until the company reports that demand has returned to normal and financial results are in-line with current projections.
Conclusion
Given the lack of coverage on the small to mid-cap space and the stock’s illiquidity, the stock appears to be mispriced as the market oversold during the pandemic and is not properly incorporating the true potential of InMode’s technologies and position in the space or the recent announcement of the stock repurchase program into the stock price. While this current point in time may represent a relative low point in the company and is a great buying opportunity for investors, external factors such as the U.S. economy and pressures from competitors can certainly minimize potential upside and drive the stock lower in the short-term.
Because of their competitive edge due to its patents and strong brand recognition, demonstrated history of profitable growth, and proven management with extensive scientific and technology experience and expertise lead by its founders, I believe InMode Ltd will become the dominant player in the medical aesthetic industry in the next 3–5 years and would be a great stock to invest in for individuals with a medium to long-term horizon.
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Disclosure: I am long INMD. I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
This post is the first of many “3-minute” stock recommendations I will be making on Medium and is more of a way for me to keep track of my recommendations and my thought processes than giving actual investment advice. Please do your own analysis and research before making any investment decisions. I am however, always willing to discuss further or connect for general career purposes. Feel free to reach out directly at bou@bowdoin.edu. Written by Brian Ou.
