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InMode
INMD-Q
HOLD
Feb 14, 2024
Stock price when the opinion was issued
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Medical devices business keeps recovering and the stocks are getting their due. Reported a 43% increase in consumables and service revenue for Q1-2023 in a strong quarter. Puzzled that shares slumped after the company didn't revise its full-year forecast. Still, shares are up 47% in the past year. A buy at 13x PE.
The revenue guidance cut is not great, of course. But it does seem to be related to consumer demand and higher interest rates, as opposed to something the company 'did' or a missed opportunity. In the lawsuit INMD is the plantiff, and we would not see it as too concerning. But INMD also has the problem of being based in Israel, and investors will likely avoid it for a while. Plus, we could see some tax-loss selling. It is 8X earnings and has $574M cash, so it is going to get through this slump. We think it will bounce, but can't time it. To hold we think investors will need to have at least a year of patience. We could see it as a tax loss sale/rebuy next year, but would not be too interested in selling in the short term after this sharp decline.
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The developer of non-invasive skin care technologies used world-wide (laser treatment, hair removal, etc.) is a TOP PICK. We like strong cash flow generation that has been backed by annual revenue growth exceeding 30% for the past three years. This allows cash reserves to grow, while the company buys back shares. It trades at 7x earnings, 1.6x book and supports a ROE of 24%. We recommend setting a stop-loss at $11, looking to achieve $21 -- upside potential of 28%. Yield 0%
(Analysts’ price target is $21.17)
In Q4, INMD beat EPS estimates of $0.64 coming in at $0.71. Revenue missed estimates of $127.29M coming in at $126.8M and declined 5% on a year-over-year basis. Guidance called for fiscal 2024 non-GAAP EPS of $2.53 to $2.57 and revenue between $495M to $505M. Analysts expected lower EPS guidance while revenue was forecasted to fall within the range guided. INMD certainly has plenty of cash and continues to generate high free cash flows while guidance appeared better than expected. One area for optimisim is that the company plans on launching two new platforms this year which could help revenue growth. Outside of the drop in revenue, the balance sheet, margins, and cash generation remain strong. We would hold here and see how things progress in coming quarters. It is becoming a bit of a value trap, but it is not without some potential.
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