INMD Stock Study (6-14-23)

I recently did a stock study on InMode Ltd. (INMD) with a closing price of $35.82. The original study is here.

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. INMD
     > 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% [inclusion of ’17, a low base, increases growth rates to 52.6% and 68.7%]. Lines are mostly up, straight, and parallel except for an 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 mean 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 and no long-term debt. As a result, Debt-to-Capital averages 0.5% over the last five years. Quick Ratio is over 10.0.

With regard to sales growth:

• CNN Business projects 17.0% YOY and 16.2% per year for ’23 and ’22-’24, respectively (based on 5 analysts).
• YF projects YOY 16.9% and 15.3% for ’23 and ’24, respectively (6 analysts).
• Zacks projects YOY 18.0% and 16.4% growth for ’23 and ’24, respectively (1).
• CFRA projects 16.9% YOY and 16.2% per year for ’23 and ’22-’24, respectively (5).
• M* projects 15.9% per year for the next two years.

Consensus for the next two years is at least 15.0% per year. I am conservatively discounting that by 30% to get a long-term forecast of 10.0%.

With regard to EPS growth:

• CNN Business projects 8.7% YOY and 11.2% per year for ’23 and ’22-’24, respectively (based on 5 analysts).
• MarketWatch projects 13.8% and 14.0% per year for ’22-’24 and ’22-’25, respectively (6 analysts).
• Nasdaq.com projects 15.2% YOY and 15.6% per year for ’24 and ’23-’25, respectively (1).
• YF projects YOY 8.7% and 13.7% for ’23 and ’24, respectively (6), along with 5-year annualized growth of 12.5%.
• Zacks projects YOY 12.0% and 13.7% for ’23 and ’24, respectively (1).
• Value Line projects 28.6% YOY and 21.7% per year for ’23 and ’22-’24, respectively.
• CFRA projects 39.2% YOY and 25.8% per year for ’23 and ’22-’24, respectively (6).
• M* projects long-term annualized growth of 10.4%.

I am forecasting just under the long-term-estimate range (mean of two: 11.5%) at 10.0%. I will use ’22 EPS of $1.89 as the initial value rather than Q1 ’23 ($2.09/share annualized).

My Forecast High P/E is 24.0. High P/E over the last four years has ranged from 29.9 (’20) to 51.7 (’21) with a mean of 39.0. The last-4-year-mean average P/E is 24.3. I am forecasting just below the latter.

My Forecast Low P/E is 9.0. 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 $17.00 based on ’22 EPS. This is 52.5% less than the previous close and 19.8% less than the 52-week low. I almost think this to be excessively low, but the stock is also up 17.5% in less than three months.

These inputs land INMD in the HOLD zone with a U/D ratio of 2.1. Total Annualized Return (TAR) is 15.3%.

PAR (using Forecast Average, not High, P/E) is 7.0%: less than I seek for a small-size company. 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 300 studies (my study along with 63 outliers excluded) done in the last 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, average 15.0%, 12.3%, 25.0, and 9.4, respectively. I am lower across the board although the P/E range is roughly equal. MOS seems decent in the current study.

MS average high and low EPS are $3.54/share and $1.97/share compared to my $3.04 and $2.01. My high EPS is lower due to a lower EPS growth rate.

MS LSPF of $19.10 is 12.4% greater than mine and implies a Forecast Low P/E of 9.7: very close to the above-stated 9.4. Being higher than mine means higher-risk zoning, but it’s still well below the previous closing stock price.

I would look to buy under $31/share, which is exactly where I ended up in my original study.