InMode: Growth At A Reasonable Price

May 25, 2022 1:05 PM ETInMode Ltd. (INMD)ISZE, IDHQ, IMTM, SPGM, EFG, LCTD, ONEQ, CRBN, ACWX, CWI5 Comments8 Likes
Bela Lakos profile picture
Bela Lakos


  • InMode had double-digit revenue and net income growth year-over-year.
  • Gross margin remains above 80%, despite the negative impact of the increased shipping costs.
  • The firm announced a share buyback program up to 1 million shares.
  • InMode appears undervalued based on traditional price multiples.

Young woman observing herself in the mirror after the beautician finished procedure of brow lifting with a botox

Kosamtu/E+ via Getty Images

InMode Ltd. (NASDAQ:INMD) designs, develops and manufactures minimally invasive and non-invasive surgical products. With these products, the firm aims to fill the market gap between traditional laser treatments and plastic surgeries.

The firm has lost more than 64% of its market cap year-to-date, despite the continuing revenue and profit growth. In our opinion, such a sharp drop in price is not justified by the fundamentals and we believe the stock could potentially be an attractive option for investors looking for both value and growth.

Data by YCharts

First, we will take a look at the financials of the firm, focusing mainly on the first quarter results. Then we will examine the growth prospects of INMD, also comparing against its peers. Finally, we will determine a fair value for the stock based on traditional price multiples.


In the first quarter of 2022, InMode has achieved record revenues of $85.9 million, which represent a more than 31% increase compared to the year ago quarter. Not only the revenue growth was impressive, but also the GAAP net income growth of more than 16%, reaching $31 million. The main driver for the growth has been the high demand for surgical technology platforms engaged in minimally invasive treatments.

InMode has described in their investor presentation the existing treatment gap between laser procedures and plastic surgery. The firm is aiming to fill this gap, by innovative and minimally invasive solutions. The target audience consists of people in the age range of 35 - 60 years old, who are looking for affordable, long-lasting and outpatient procedures, without the disadvantages of invasive plastic surgery.

table with descriptions

Treatment gap (InMode)

In contrast, the sector median revenue growth rate was about 15%, EBITDA growth was 11% and EPS growth about 12.6%. Across all metrics, IMND performed significantly better than its peers.

InMode's margins have remained strong, despite a slight decline in the gross margins due to supply chain constraints and elevated shipping prices. Gross margin stayed well above 80% and net margin remained above 40%. To put these figures in perspective, the sector median gross margin is approximately 55%, which is about 30% less than INMD's.

line chart margins

Margins (

Despite the challenges, which are expected to continue in the rest of 2022, the firm reiterated its full year guidance, mainly driven by the high forecasted demand for their products. Geographically, the largest revenue contributor is expected to remain North America. High demand is also fueled by the easing of the Covid-19 restrictions. Further, analysts forecast both the revenue and the earnings per share to grow in the upcoming years, however the growth is expected to be slower than in the prior years.

In our opinion, the impressive growth of both revenue and profits, combined with the high margins, prove that InMode has been successful in identifying the so-called treatment gap and also successfully monetized on it so far. Further, INMD has demonstrated in the first quarter that it can tackle the supply chain challenges, which makes us remain bullish on the stock.

Fundamentals, risks and valuation

After a 64% drop in the share price year to date, the valuation of the firm appears attractive. Many other stocks this year have lost a large percentage of their market cap this year, however most of those stocks were not generating profits. In contrast, INMD generates profits, has high margins and has also strong cash flow from operations. They also have almost $400 million in cash, while their total debt is only $3 million. The firm's liquidity also appears to be in excellent shape with a quick ratio of 8.63, and a debt/free cashflow of 0.52. Meaning, INMD can easily fulfill its short-term financial obligations.

In 2021, InMode has also improved both its inventory turnover ratio and its ROA.

Potential risks

Further, INMD has maintained its 2022 guidance, expecting to successfully navigate the challenges arising from the current market environment. But to get a more complete picture, we have to understand what factors could be creating headwinds for the firm.

In our view, macroeconomic challenges, including rising commodity prices and shipping costs, coupled with a tight labor market might create temporary headwinds in the short term on the supply side, negatively impacting the margins of the firm. Challenges on the demand side might arise from declining consumer confidence, which is at a 10-year low, close to the lows seen in 2008-2009.

line chart consumer confidence

U.S. consumer confidence (

We expect the low consumer confidence to eventually lead to lower consumer spending. In our opinion, this may negatively impact the demand for non-essential products and service, including INMD's products and services.

Apart from the macroeconomic risks, we also have to mention regulatory risks, which InMode might be subject to. In the United States, InMode needs to receive FDA approval to market and sell their products. FDA approvals and pre-authorizations can be lengthy (ranging from months to years) and costly. In an industry, where rapid innovation is key to stay ahead of the competition, delays in product marketing can have significant negative impacts. Currently, all of INMD's products have the required FDA approvals, therefore we do not believe there is a severe near-term impact, however for new products clearance will need to be obtained.

Although the macroeconomic outlook has materially changed, we believe there have been no material changes in the fundamentals of the business. Further, due to strong cash flow generation, the $400 million cash on hand, and the low debt levels, INMD is not likely to be significantly influenced by the potential rising cost of capital due to the increasing interest rates. In our opinion, regardless of the macro headwinds, the 60% drop in the price is not justified.

A comprehensive list of risks can be found in the firm's annual report.


So, the next question is how much we should pay for INMD's stock?

When looking at traditional prices multiples, price-to-earnings, EV/EBITDA and P/CF, InMode appears significantly undervalued both compared to the sector median and to its own 5-year historic averages. The price-to-earnings ratio of the firm is slightly above 11x currently, which is more than 42% lower than the sector median and also almost 60% lower than its own historic average. In terms of EV/EBITDA and P/CF the same trends can be observed.

Further, the company also announced to repurchase up to 1 million shares, creating further value for their shareholders.

In our opinion, based on the price multiples, the forecasted earnings growth and the announced share buyback program, the fair value of INMD's stock is estimated to be in the range of $38 - $54.

Key takeaways

InMode had strong revenue and net income growth in the first quarter

Increasing shipping costs have impacted the firm's gross margins, but it remained well above 80%.

INMD appears undervalued based on traditional price multiples, after a more than 60% price drop year to date.

The firm has announced a repurchase program for up to 1 million shares, creating further value for investors.

This article was written by

Bela Lakos profile picture
Petroleum engineer with an enthusiasm for investing, accounting and personal finances.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Past performance is not an indicator of future performance. This post is illustrative and educational and is not a specific offer of products or services or financial advice. Information in this article is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. This article has been co-authored by Mark Lakos.

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