InMode (INMD 5.78%) is proof that there is not always a trade-off between high-value stocks and those with huge growth potential. This medical device maker has everything you’d expect from a value stock – a low valuation, a repeatable business model and cost-sensitive management – and it also has the strong revenue and earnings growth of a stock. monster growth.
There are reasons to believe that the company’s fortunes will continue to improve. Let’s analyze how and why InMode sports these positive characteristics but is not as wealthy as a company like You’re here.
Cut fat without breaking the bank
InMode develops medical devices that plastic and facial surgeons use to liquidate fat, remove unwanted hair, tighten skin and sculpt muscle. Unlike plastic surgery techniques that aim for the same goals, the company’s equipment does not require patients to be under anesthesia and the administration of treatments is significantly less invasive.
Management says its collection of 28 Food and Drug Administration (FDA)-approved devices can provide patients with results similar to plastic surgery; however, its treatments are much more accessible. And that’s a good sign when a company is trying to break into a crowded market like medical aesthetics.
Additionally, InMode treatments are often less expensive than plastic surgeries. But don’t think that means the economics of the business unit are unfavorable. Its profit margin – over 44% – should be enough to make most investors’ heads spin. Moreover, it is still a growing company. Since the second quarter of 2019, its revenue for the last 12 months has increased by 206%, exceeding $377.9 million, and net profit has increased further, reaching 393%. Continuing to grow the company’s global sales force with its profits should ensure new sales continue to flow over time.
To top it all off, InMode is only a little over $3 million in debt, and its cash on hand of around $399 million allows it to pursue growth opportunities quite aggressively in several avenues. That could come in the form of additional research and development (R&D) spending to develop new devices, for example, as its spending over the past 12 months totaled just a hair over $10 million. Or it could opt for growth focused on acquiring promising, smaller device makers.
The price is right
Although InMode’s business model and rapid penetration of its markets make it a lookalike for a high-flying growth title, it is also valued at a fairly low price. Its price to earnings (P/E) ratio is around 11. This puts it at a considerable discount to the market average P/E of around 19. And looking at the industry average P/E of about 43 medical equipment and supplies, the stock seems priced at an even deeper bargain.
So what’s the problem ? There are a few, starting with the stock crashing more than 50% in the last 12 months. Some of that decline could be related to a slight deceleration in its revenue growth over the past year. Another share of the losses could be attributed to the dramatic decline in market appetite for growth stocks, prompted by the prospect of higher interest rates and quantitative tightening from the Federal Reserve. . And its price target recently cut by Wall Street analysts certainly isn’t helping either.
Nevertheless, InMode will continue to grow its fleet of devices deployed around the world, and with that, it will also start generating more and more revenue from recurring sources like extended warranties, maintenance contracts and consumable applicators for use with its devices. In the long run, his hardware might even outperform similar solutions, like laser skin tightening products. And at its current value, it’s as close to being a steal as it gets – which is why it’s my most attractive stock to buy for investors right now.