INMD - InMode: Buying Opportunity At Oversold Market Levels

2023-11-29 05:29:26 ET

Summary

• InMode exhibited financial resilience in Q3 2023, with a modest increase in revenue and a significant rise in international sales.
• The stock price has recently declined but is now consolidating at lower levels, indicating a potential bottoming out.
• Despite operational challenges, InMode remains optimistic, projecting revenue between $500 million and $510 million for 2023.

InMode Ltd. (INMD) exhibited financial robustness in the third quarter of 2023, attaining a modest increase in revenue despite prevailing economic challenges. This period was marked by a rise in international sales, underscoring the company's growing global impact. This article delves into the financial status of InMode, alongside a technical analysis of its stock price to discern potential future trends and investment opportunities. The analysis reveals that the stock price has recently declined and is now consolidating at lower levels, suggesting a potential bottoming out.

Financial Performance

InMode's financial performance in Q3 2023 displayed resilience amidst a challenging economic landscape, marked by modest growth and some operational challenges. The company's total revenues reached $123.11 million, a 2% increase compared to Q3 2022. This growth, albeit slight, is noteworthy considering the broader economic headwinds. The 13% increase in international sales was a significant highlight, underscoring the company's expanding global footprint. The chart below illustrates InMode's quarterly and annual revenue, revealing that while there was a minor dip in revenue for Q3 2023, the company's yearly revenue demonstrates overall profitability. Specifically, the 2022 revenue of $454.27 million underscores the company's financial success.

Moreover, CEO Moshe Mizrahy pointed to a slowdown influenced by strong seasonal effects and high-interest rates, which impacted leasing agreements and extended sales cycles. Despite these challenges, the over 20% year-over-year growth in consumables was a notable positive, reflecting robust demand for InMode's treatments. The soft launch of the Envision in the U.S. also gained traction, as noted by Shakil Lakhani, President of InMode North America, indicating a growing interest among ophthalmologists and optometrists.

Financially, the company saw a slight margin dip, with GAAP and Non-GAAP gross margins at 84%, a marginal decrease from 85% in Q3 2022. Operating margins also reduced, with GAAP operating margin at 38% (down from 44%) and Non-GAAP operating margin at 43% (down from 51%). This decrease was attributed to increased sales and marketing expenses, including advertising and hosting events investments. The overall sales and marketing expenses reached $50.82 million in Q3 2023, as shown in the chart below.

Net income figures followed a similar trend, with GAAP net income at $46.5 million ($0.54 per diluted share), a decrease from $48.8 million ($0.58 per diluted share) in Q3 2022. Non-GAAP net income stood at $53.1 million ($0.61 per diluted share), compared to $56.6 million ($0.66 per diluted share) in Q3 2022. Despite these decreases, the company remains optimistic, projecting revenue between $500 million and $510 million for 2023, with a Non-GAAP gross margin between 83% and 85%.

InMode's management also reassured investors regarding the situation in Israel, affirming there is no anticipated disruption in production or shipping, with sufficient inventory levels to last at least six months. Overall, InMode's Q3 2023 performance, though impacted by external economic factors, shows a company maintaining steady growth and demonstrating resilience in its operations and market expansion.

Exploring the Bottom Formation in InMode

The monthly chart for InMode reveals a decidedly bullish technical outlook, highlighting a significant price recovery from lower levels. The chart shows that the most vigorous price rally began after the stock hit a low of $6.57 in March 2020. This upward trajectory continued robustly, leading the stock to reach record highs of $99.27 in November 2021, showcasing a remarkable turnaround in its market performance.

This upward surge in price was primarily due to the global economic uncertainty triggered by the COVID-19 pandemic. Investors, concerned about the impact of widespread lockdowns and the potential slowdown in elective medical procedures, reacted negatively, leading to a steep decline in InMode's stock. However, the company's stock rallied to record highs by November 2021, driven by several key factors. As the pandemic progressed, there was an increased demand for minimally invasive aesthetic procedures, a sector where InMode specializes, fueled by the "Zoom boom" where people sought to enhance their appearance for video conferencing. Additionally, InMode's strong financial performance, marked by robust revenue growth and profitability, along with broader market recovery aided by stimulus measures and vaccine rollouts, significantly boosted investor confidence, leading to a remarkable boost in the stock price.

Nevertheless, following the peak at $99.27 in November 2021, InMode's stock price formed a bearish hammer pattern, leading to a downward trajectory. This decline persisted into 2023, culminating in a notable low in October 2023. However, in November 2023, the stock established a solid base, indicating a potential reversal. The critical turnaround observed in November 2023 suggests that the stock might have reached its price bottom at these levels.

To delve deeper into the bullish momentum observed in November 2023, the weekly chart below underscores a period of price consolidation in recent weeks, signaling the emergence of a potential bottom at the current levels. Notably, the chart features a red trendline marking a significant resistance point near $31, which could be the immediate hurdle in this bullish reversal. Intriguingly, the RSI ascends from oversold territory, a level seen during the 2022 low at $20.60.

The short-term daily chart also suggests a reversal from the lows, characterized by a double bottom formation. This pattern typically indicates a likelihood of higher prices from these levels. Given these technical indicators, investors might consider entering a long position at the current price levels, anticipating a potential uptrend move.

Market Risk

The slight increase in total revenues to $123.1 million, with a 13% rise in international sales, indicates a steady expansion in the global market. However, this performance comes with inherent market risks. The high-interest rates affecting leasing agreements and extended sales cycles, as noted by CEO Moshe Mizrahy, could signal a significant slowdown in revenue growth if economic conditions worsen. While positive, the over 20% growth in consumables may not fully offset the operational challenges in other segments.

The decline in GAAP and Non-GAAP gross margins and operating margins raises concerns about operational efficiency and cost management. The decrease in margins, primarily due to increased sales and marketing expenses, suggests a risk of eroding profitability if these costs continue to outpace revenue growth. While InMode projects revenue between $500 million and $510 million for 2023 with stable gross margins, realizing these targets amidst an uncertain economic environment remains a significant market risk.

While the recent establishment of a solid base in November 2023 suggests a potential reversal, it also indicates volatility and uncertainty in the stock's trajectory based on the solid market drop after November 2021. A break below $18 will indicate further downside momentum before the next surge.

Bottom Line

In conclusion, InMode's financial performance in Q3 2023 paints a picture of a company adeptly navigating a complex economic environment. Despite operational challenges and a modest dip in quarterly revenue, InMode has maintained a growth trajectory, as evidenced by its yearly revenue and international sales expansion. The company's ability to achieve a 2% increase in revenue in such an environment, coupled with a significant surge in international sales, demonstrates its robust market presence and adaptability.

The technical analysis of InMode's stock further complements this narrative. The stock's journey from a significant low in early 2020 to record highs in late 2021, followed by a downward trend and a potential bottoming out in late 2023, highlights the stock's resilience and potential for recovery. This trajectory, marked by a recent base formation, suggests a turning point that could be ripe for investment opportunities, albeit with inherent market risks. Investors may consider buying the stock at its current levels, with expectations of a price increase, given that it oscillates at lower levels.

For further details see: