INMD - InMode - One Beautiful Stock

2023-06-06 23:47:13 ET

Summary

• InMode is a leader in the niche industry of minimally invasive medical treatment solutions, with strong brand recognition and a growing market presence.
• The company has an experienced leadership team, impressive financials, including high gross margins and virtually no debt, and continuous revenue growth.
• InMode appears to be fairly valued or potentially undervalued, making it an attractive investment opportunity for investors looking for a solid company in a growing market.

For many investors 2023 has been somewhat of an unexpected surprise. Several analysts predicted a recession, but the market has steadily risen as the S&P is up over 11% year-to-date .

Despite that good news, the S&P has been led upwards by only a few large companies such as NVIDIA ( NVDA ). Many companies are still down following the decline in the hot IPO and SPAC markets of recent years.

Today I’d like to look at one such company which is a leader in niche industry, has sublime financials, and appears to be undervalued. That company is InMode ( INMD ).

The Company

InMode is a leading provider of innovative, minimally invasive medical treatment solutions. As stated on the company’s latest annual filing , the organization creates products designed to address three main categories: face and body contouring, medical aesthetics, and women’s health. The company’s line of products includes the following:

These products can be categorized as minimally invasive, non-invasive (laser) or hands-free. The company earns most of their revenues in the United States and most of that revenue was from the sale of minimally invasive platforms (85% in 2022, 71% in 2021, and 59% in 2020). Revenues from the sale of hand-free platforms accounted for 12%, 27%, and 39% of U.S. revenues in 2022, 2021, 2020 and the rest of the U.S. revenues was from the sale of non-invasive platforms.

As stated on the company’s annual report, InMode believes, “…Our products have consistently been at the forefront of technological development in the aesthetic solutions market. ” Through the company’s innovation they have created differentiating products using RF (Radio Frequency) technologies. With InMode’s RF energy-based technologies they are disrupting the market by offering products which minimize risks of scarring, downtime, pain, and other complications typically associated with traditional surgical procedures.

InMode has strong brand recognition as they have products now in over 90 countries worldwide, and have received numerous accolades from industry professionals, athletes, celebrities, and individuals alike. Below is a quote from celebrity Eva Longoria regarding InMode’s results.

These types of statements don’t just come from celebrities as numerous reviews praise the various InMode products.

Moat and Opportunity

As stated on a recent investor presentation InMode believes they can fill the “Treatment Gap.” As seen below, InMode believes their products can replace plastic surgery as their offerings don’t have the typically negative shortcomings of plastic surgery such as lengthy downtime or scarring.

InMode sells their products to various customers such as plastic and facial surgeons, dermatologists, aesthetic surgeons and OB/GYNs. As stated above, the cost may be more affordable to the end consumer, but InMode is still able to reap the benefits by providing high-end innovative solutions.

As shown below, InMode believes there is a significant opportunity to continue to sell to these professionals in the United States:

InMode has 29 FDA clearances in the United States and has seven patents across these various product families. InMode has a portfolio of 84 peer-reviewed publications and there are 79 completed and 13 on-going.

The company is also permitted to sell their products in Europe, Argentina, Australia, Brazil, Canada, China, Colombia, the Commonwealth of Independent States, Israel, Mexico, Panama, Philippines, Russia, South Korea, Taiwan and Thailand.

As reported on the company’s latest 20-F , 34% of revenues was from customers located outside of the United States in both 2022 and 2021. The company believes there is opportunity to grow in Canada and European countries such as England, Spain, Portugal, and France.

On the company’s latest conference call, it was promising to hear the CFO mention sales hitting a record high in Europe and as well as hearing about the expansion plans in Europe and Asia later in the year.

Given InMode’s products, patents, FDA clearances, accolades, and brand recognition I believe it would be difficult (albeit not impossible) for InMode to lose their status as the leader in this niche market in the upcoming years.

Also, as mentioned at the company’s last conference there may be future opportunities presented to the company. One analyst asked a question about exciting, new weight loss drugs and the impact that may have on InMode. This was the response given by their Chief Medical Officer, “…Weight loss is actually helps us because, first of all, we're the skin tightening company, right? So when the patients have loose skin, they've already lost the weight, they come to us to be able to tie in that. So what it actually does, it increases the number of patients you can do with liposuction, right? So they still have some fat of pockets or fat areas, that areas that need removed. But if you have loose skin, it kind of limits them in the aesthetic result. So adding a tightening procedure in addition to the liposuction capabilities we have increases the size of that market.”

Furthermore, InMode is in an excellent financial position (which we’ll discuss further below) to make an acquisition (or two) and expand or enhance the company’s current offerings.

Management

Moshe Mizrahy and Michael Kreindel co-founded InMode back in 2008 . Mizrahy is the current Chairman and CEO of the company. Kreindel is the current chief technology officer. Before working at InMode, Mizrahy and Kreindel worked together at Syneron Medical where they held similar roles.

Yair Malca is the current CFO. Malca also worked with Kreindel and Mizrahy previously at Syneron where Malca served as the organization’s controller. Malca has been the CFO of InMode since 2017.

As I’ve stated previously , I’m a big believe in founder CEOs due to their propensity to focus on the long term. I believe this is an experienced management team with a vision to create superb products while maximizing shareholder value.

I think InMode has an experienced leadership team and with a return on equity of over 30%, this team knows how to reinvest profits which will reward the long-term investor.

Financials

InMode’s financial position is quite exceptional. InMode has had extremely impressive revenue growth as this slide from a recent investor presentation clearly illustrates:

Revenue (in light blue and represented in millions) has grown by roughly 50% during the last five years. Non-GAAP net income (represented in dark blue) has obviously grown as well and perhaps the most impressive feat is the gross margins of over 80% the company has been able to achieve.

Additionally, the company has a return on equity of over 30% and virtually no debt on the company’s Balance Sheet .

In Q1 2023, InMode had a solid quarter as revenue grew to roughly $106 million, which is an increase of roughly 23% compared to Q1 2022. In the first quarter, sales outside the US were roughly $44 million or 41% of sales. The company continues to see growth in different markets, as sales in Europe hit a new high. Additionally, the company now operates in over 90 countries with a team of more than 230 sale reps and over 80 distributors.

I think this was a great quarter for the company and I’m impressed with the company’s solid balance sheet, continuous revenue growth, and high gross margin.

Risks

For the current year there are obviously still macro concerns such as if a recession occurs (in the United States or globally) or if there is a slowdown in spending. As these are high-end, expensive products a provider may hold off on a purchase or may hold their current cash reserves in this high interest rate environment.

There are a variety of longer term risks such as, insignificant demand or product slowdown, risks related to protecting intellectual property and being unable to stay on the forefront of product innovation.

Then there are additional risks such as government regulations (for example, failing to maintain or obtain FDA clearances) or issues with operations in Israel (should it become an unstable situation).

Mizrahy stated in the prior conference call the company was not seeing a slowdown in demand. The guidance provided for the current year did seem conversative as well. I would be concerned if InMode failed to meet guidance over the next several quarters.

Long term, I believe the biggest risk is product innovation. If competitors can create similar products or InMode fails to continue to create new and exciting products the company could lose market share. Additionally, as one SA analyst (and I’ve heard similar sentiments) stated, InMode could be a “ one trick pony ” with limited future prospects.

Valuation

InMode has trailing P/E ratio of roughly 16. This compares to a trailing P/E of 104 for other similar companies. In looking at some various metrics from Seeking Alpha, although the overall value grade is a “C” I like following forward P/E and thus as you see below InMode is superior in this sector compared to peers.

Currently, InMode seems fairly valued if not undervalued and I think now would a good time for investors to add shares.

Conclusion

In my opinion, there is a lot to like about InMode. The company has a stellar senior leadership team which has put the company in an excellent financial position. Revenues have been growing, gross margin is over 80%, and the company has essential zero debt.

InMode has strong brand recognition, is a leader in a growing niche market, and has endorsements from professionals to celebrities alike.

Also, compared to many overvalued stocks, InMode doesn’t have a ridiculous valuation. If InMode can continue to develop innovative products and expand further overseas, I believe the company can hold its position as the current market leader in this niche industry.

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