InMode Stock Attractive after Sell-Off

InMode (NASDAQ: INMD) is a medical technology company. The company has developed devices that use radiofrequency (RF) technology to perform cosmetic procedures. The company is the developer, manufacturer, and seller of the platform.

After a tremendous run in 2021, InMode stock is now over 41% off its 52-week high. I am bullish on InMode stock.

InMode’s Technology

Traditional cosmetic surgery is performed in a surgical center. Many of the procedures are invasive and have long recovery times. They are also very expensive and may be out of reach for most people.

InMode’s RF platforms are the opposite. The procedures are performed in an office setting and are minimally invasive. This allows InMode to target a large market for its machines.

The technology is approved for use, and InMode protects it with patents, although similar products could still come to market.

Macro Situation

InMode has been unfairly caught up in the broad growth stock sell-off. The sell-off is in response to rising yields and fears over inflation.

The Federal Reserve is raising interest rates in response to high inflation. With inflation reaching nearly 7% in the U.S., many fear that rates will rise faster than forecast.

When this happens, growth stocks often fall as Wall Street recalculates the returns from estimated future cash flows against the higher rates. Many of the growth stocks being punished currently have two things in common. They are growing rapidly and not yet profitable. InMode, on the other hand, is highly profitable.

Growth and Profitability

In fact, InMode posts incredible margins while also growing rapidly.

InMode has an EBITDA margin, operating margin, and net profit margin that are all over 46%. This is incredible for a growth company. Q3 2021 revenues were up over 57% from Q3 in 2020. Over 2019, the Q3 revenue was up an impressive 135%.

Operating profit results are even better. In Q3 2021, the company earned $45 million in operating income, up 93% over the $23.3 million earned in the same period in 2020.

Because of these profits, the company has a massive balance of cash and short-term investments on the balance sheet. As of the prior quarter, the company held $387 million in cash and short-term investments. This accounts for more than 8% of the company’s market cap.

Because of the immense amounts of cash on hand, it is essential to measure the company’s valuation through enterprise value rather than simply using the price-to-earnings (P/E) ratio.

Currently, the company trades at a reasonable 36 P/E and a compelling EV-to-EBITDA ratio of only 20.8. These metrics show that InMode has been unfairly caught up in the growth market sell-off.

Wall Street’s Take

Turning to Wall Street, analysts are extremely bullish on InMode stock, with a Strong Buy consensus rating based on five Buys and no Holds or Sells.

The unanimous Buy rating shows that Wall Street is also impressed with InMode’s metrics.

The average InMode price target of $94.40 implies 63.5% upside potential.

Bottom Line

InMode has a proprietary technology that is a hit in the market. The company has increased its salesforce and is pushing sales.

This is evidenced by the rapidly growing revenues. The stock now trades well off its 52-week high due to macro conditions.

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Disclosure: At the time of publication, Bradley Guichard did not have a position in securities mentioned in this article.