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InMode: Improve people’s beauty and portfolio

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InMode (INMD) develops, develops, manufactures and sells minimally invasive aesthetic medical devices. In addition, it designs, designs, manufactures and sells non-invasive medical aesthetic products aimed at a range of procedures.

These include permanent hair reduction, wrinkle reduction, facial skin rejuvenation, skin appearance and texture, cellulite treatment and superficial benign vascular and pigmented lesions.

The company was founded by Michael Kraindel and Moshe Mizrahi on January 2, 2008, and is headquartered in Yokneam, Israel.

We believe the market is seriously misjudging InMode at the current level, and its recent earnings report helps confirm this. As a result, we are in the mood for action.

Recent revenue results

InMode recently reported earnings and delivered another strong quarter. It exceeded earnings per share by $ 0.02 and revenue by $ 2.47 million. Total earnings per share were $ 0.40 and total earnings were $ 85.92 million for the quarter.

This equated to revenue and profit growth of 31.2% and 17.6% year on year, respectively. More importantly, the company has reaffirmed its recommendations for 2022. It expects earnings of $ 415 to $ 425 million and earnings per diluted share of $ 2.06 to $ 2.11.

In addition, despite supply chain disruptions, InMode expects to maintain gross margins of 84% to 86%. The company has done a great job of actively combating these failures without raising prices, having at least three suppliers for each component.

Interestingly, the company probably has the price power to raise prices. However, management is reluctant to do so in the middle of the year, deciding to wait until the end of the year.

This demonstrates the company’s focus on maintaining good relationships with its customers without exploiting them when using inflation as an excuse, as some other companies have done.

Growth catalysts

The main catalyst for InMode’s growth is its line of high-quality products that provide an excellent return on investment for its customers. This has led to 30% of existing customers purchasing new devices for their practice.

Over time and the advent of new products, more repeat orders will appear. This is important because selling to existing customers is much cheaper than buying new ones.

In addition, the growing demand for the company’s devices has also led to an increase in revenue from consumables and services, which is a recurring revenue stream.

In the fourth quarter of 2021, consumables and services accounted for 11% of revenue. Only a quarter of it accounts for 16% of revenue. This impressive increase in just a few months is a very positive sign that its products remain popular.

What’s more, the company is now trading at a very low rate due to fear-based sales in the market over the past few months. So when the dust finally settles, InMode should return to a fair value, which we think is much higher.

Evaluation

To demonstrate how undervalued InMode is currently, we will conduct a reverse engineering discounted cash flow model to determine the required growth rate to justify the current valuation. At the current price of $ 24.35, the required growth rates are negative:

Image created by the author

As a result, the market estimates InMode as if its free cash flows are going to decline with an overall annual growth rate of -1.81% over the next 10 years.

This is too pessimistic for a company that is expected to see double-digit growth in the coming years and is likely to see positive CAGR over the next decade. Indeed, we have compiled a table below to demonstrate the estimate at different growth rates:

Image created by the author

As you can see, even if the growth rate was unambiguous, the score should be much higher.

Headwind

No matter how great InMode is, it still faces headwinds like all other equipment companies. In addition to supply chain failures that have been managed effectively, there has been a slowdown in Asia.

Specifically, sales delays are observed in China and Japan due to their strict COVID-19 restrictions. Vendors are reluctant to take on these restrictions to run a business there.

In addition, China continues to impose blockades due to the ineffectiveness of its home-grown vaccines combined with their refusal to use more effective Western vaccines.

As a result, opportunities in these regions are currently not fully realized.

Wall Street

Turning to Wall Street, InMode has a consensus Strong Buy rating based on four purchases made over the past three months. Average InMode target price $ 63.75 implies 161.81% growth potential.

The target price ranges from a minimum of $ 50 to a maximum of $ 90 per share.

Concluding remarks

InMode is an extremely well-run company that produces high-quality products that can sell more than 80% of gross profit. Despite this, over the next 10 years the market made serious mistakes in valuing stocks for negative growth.

As a result, we are very keen on the action.

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