INMD Stock Study (3-23-23)

I recently did a stock study on InMode Ltd. (INMD) with a closing price of $30.48.

M* writes:

     > InMode Ltd provides minimally and non-invasive surgical
     > aesthetic and medical treatment solutions in the United
     > States. Its products and solutions address three energy-
     > based treatment categories that include face & body
     > contouring, medical aesthetics, and women’s health.
     > InMode has developed products using its technology for
     > plastic surgery, dermatology, gynecology, and ophthalmology.

Since 2018, this small-size company has grown sales and EPS at annualized rates of 47.0% and 52.9% (including ’17—a low base—raises these rates to 52.6% and 68.7%, respectively). Lines are mostly up, straight, and parallel except for EPS dip in ’22. PTPM leads peer/industry averages, increasing from 18.3% in ’17 to 44.3% in ’22 with a last-5-year average of 38.3%.

ROE averages 33.7% over the last four years. This leads the industry and is roughly equal to peer averages. The company has minimal uncapitalized, annual rentals but no long-term debt. As a result, Debt-to-Capital averages 0.5% over the last five years. Quick Ratio is over 7.

I forecast 12% long-term annualized sales growth based on the following:

• CNN Business projects 16.7% YOY and 16% per year for ’23 and ’22-’24, respectively (based on 4 analysts).
• YF projects YOY 16.7% and 15.2% for ’23 and ’24, respectively (5 analysts).
• Zacks projects YOY 16.7% and 16.1% growth for ’23 and ’24, respectively (1).
• CFRA projects 16.7% YOY and 16% per year for ’23 and ’22-’24, respectively (4).
• M* projects 15.9% per year for the next two years.

Consensus for the next two years is at least 15% per year. I am conservatively discounting that by 30% for the longer term.

I forecast 12% long-term annualized EPS growth based on the following:

• CNN Business projects 7.4% YOY and 10.8% per year for ’23 and ’22-’24, respectively (based on 4 analysts).
• MarketWatch (also FactSet) projects 13.4% and 14.2% per year for ’22-’24 and ’22-’25, respectively (5 analysts).
• Nasdaq.com projects 17.7% YOY and 16.8% per year for ’24 and ’23-’25, respectively (1).
• YF projects YOY 7.4% and 14.2% for ’23 and ’24, respectively (5), along with 5-year annualized growth of 12.5%.
• Zacks projects YOY 7% and 15.4% for ’23 and ’24, respectively (1).
• Value Line projects annualized growth of 20% from ’22-’24.
• CFRA projects 37.6% YOY and 25.4% per year for ’23 and ’22-’24, respectively (3).

I am forecasting just under the one available long-term estimate.

My Forecast High P/E is 25. High P/E over the last four years has ranged from 29.9 (’20) to 51.7 (’21) with an average of 39. I am forecasting below the range.

My Forecast Low P/E is 9. Low P/E over the last four years has ranged from 7.4 (’20) to 11.8 (’21). I am forecasting just below the mean (9.6) and median (9.5).

My Low Stock Price Forecast (LSPF) is the default value of $18.10. This is 40.6% less than the previous close and 12.1% less than the 52-week low.

These inputs land INMD in the BUY zone with an U/D ratio of 3.8. Total Annualized Return (TAR) is 21.4%.

PAR (using Forecast Average, not High, P/E) is decent at 12.4%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Out of 324 studies (mine excluded) done in the last 90 days, projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, average 16.9%, 13.2%, 27.9, and 9.4, respectively. My inputs are slightly lower.

Value Line projects an average annual P/E of 12.9.in ’24, which is significantly lower than MS (18.7) and mine (17). Value Line states average annual P/E from ’19 to ’22 as: 20.5, 19.3, 28, and 18.1. In looking at the high/low P/E by year from M*, I see 36.7/8.2 (mean 22.5), 29.9/7.4 (mean 18.7), 51.7/11.8 (mean 31.8), and 37.6/10.9 (mean 24.3). The difference between Value Line and M* is therefore -2.0, +0.6, -3.8, and -6.2. On average, Value Line seems to understate M* by 11.4 / 4 ~ 2.8. Even adding this to the projected 12.9 in ’24 gets 15.7, which is still less than mine. Even though I am using a 12% EPS growth rate compared to Value Line’s 20%, I don’t see much MOS behind this study [overlooking the detail that Value Line’s projections are through ’24 rather than five years hence].

MS average high and low EPS are $3.68/share and $1.96/share compared to my $3.33 and $2.01. MS Low Stock Price Forecast is 6.4% above mine at $19.26.

Due to MOS concerns, I would look to buy under $31/share (an arbitrary 10% lowering of the upper purchase limit).