INMD Stock Study (6-14-24)

Posted by Mark on July 26, 2024 at 07:14 | Last modified: June 14, 2024 13:14

I recently did a stock study on InMode Ltd. (INMD) with a closing price of $18.20. Previous studies are here and 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 2019 when public trading begins, this small-size company grows sales and EPS at annualized rates of 36.1% and 33.2%, respectively. Lines are mostly up, straight, and parallel except for an EPS dip in ’22.

Since ’19, PTPM leads peer and industry averages and increases from 39.7% to 44.2% (’23) with a last-5-year mean of 42.4%. ROE also leads peer and industry averages despite falling from 33.0% to 26.7% (’23) for a last-5-year mean of 32.3%. The company has no long-term debt thereby leaving Debt-to-Capital far below peer and industry averages with a minuscule last-5-year mean of 0.7%.

Quick Ratio is over 12. Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

• YF projects YOY 2.5% contraction and 7.8% growth for ’24 and ’25, respectively (based on 5 analysts).
• Zacks projects YOY 2.7% contraction and 6.3% growth for ’24 and ’25, respectively (1 analyst).
• CFRA projects 2.4% YOY contraction and 2.8% growth per year for ’24 and ’23-’25, respectively (6).
• M* projects 1.8% growth per year for the next two years.

I am forecasting below the range at 1.0% per year.

With regard to EPS growth:

• MarketWatch projects 3.5% and 3.2% per year for ’23-’25 and ’23-’26, respectively (based on 6 analysts).
• Nasdaq.com projects 5.6% YOY for ’25 (1 analyst).
• YF projects YOY 20.6% contraction for ’24 and 11.3% growth for ’25 (6) along with 5-year annualized growth of 2.8%.
• Zacks projects YOY 21.0% contraction for ’24 and 6.4% growth for ’25 (1).
• Value Line gives an analyst estimate (1) of 9.1% annualized contraction from ’23-’25.
• CFRA projects 11.3% YOY contraction for ’24 and 0.2% growth per year for ’23-’25 (5).

Analyst estimates are extremely scarce. None of the “Big 3” (Value Line, M*, and CFRA) have an analyst assigned. All of the above reduces to a few short-term and one long-term estimate (2.8%).

I am forecasting conservatively with flat earnings growth based on 2022 EPS of $1.89. This is 4.0% annualized contraction from ’23 EPS of $2.30 to get a 5-year forecast of $1.88/share.

My Forecast High P/E is 21.0. Since 2019, high P/E falls from 36.7 to 21.0 (’23) for a last-5-year mean of 35.4 and a last-5-year-mean average P/E of 22.3. I am forecasting at the bottom of the range.

My Forecast Low P/E is 7.0. Since 2019, low P/E ranges from 7.4 in ’20 to 11.8 in ’21 for a last-5-year mean of 9.3. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $13.20 is default based on ’22 EPS. This is 27.5% less than the previous close and 21.0% less than the 52-week low.

These inputs land INMD in the BUY zone with a U/D ratio of 5.4. Total Annualized Return (TAR) is 19.9%.

PAR (using Forecast Average—not High—P/E) of 9.8% is 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). Based on 169 studies (my study and 36 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 6.5%, 6.5%, 21.0, and 8.4. I am lower across the board. Value Line’s projected average annual P/E of 10.1 (albeit for ’25) is lower than MS (14.7) and lower than mine (14.0).

MS high / low EPS are $3.03 / $2.20 vs. my $1.88 / $1.88 (per share). My high EPS is less due to a negative growth rate and lower initial value. Value Line projects $1.90/share for high EPS (in ’25), which is about equal to mine (in ’28).

MS LSPF of $15.70 implies a Forecast Low P/E of 7.1: less than the above-stated 8.4. MS LSPF is 15.0% less than the default $2.20/share * 8.4 = $18.48, which results in more conservative zoning. MS LSPF is 18.9% greater than mine, however.

With regard to valuation, Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fire-sale cheap at 0.39.

MOS in the current study is robust. TAR is much less than the MS TAR of 27.1%. I lowball my inputs relative to scant analyst coverage and I think it shows.

The stock is certainly a fallen angel down ~50% in the last year. Is it just out of favor due to war in Israel (Inmode HQ)?

I did find out about a class action lawsuit:

     > The filed complaint alleges that defendants made false
     > statements and/or concealed that: (i) InMode heavily
     > discounts almost every device it sells; (ii) demand for
     > InMode’s products was driven by InMode’s willingness to
     > discount its products; (iii) InMode violated U.S. Food
     > and Drug Administration (“FDA”) regulations by engaging
     > in off-label marketing and promoting products for
     > treatment of indications for which they lack FDA
     > approval; and (iv) InMode violated FDA regulations by
     > failing to timely report injuries caused by its devices.

One attorney site claims ~5% of S&P 500 companies are named as securities class action defendants each year (3.8% in ’22). It does happen and it’s not necessarily end of the road. As a prospective investor, maybe I want to steer clear until the case is dismissed or reaches settlement. Maybe I want to increase MOS in terms of purchase price. I have done the latter.

U/D has INMD a BUY under $21/share. The stock meets the BI TAR criterion under $22 with a forecast high price of $45.

Disclaimer: I own shares in this security.