InMode (NASDAQ:INMD) is a promising aesthetic medical product player. Its proprietary radio frequency platform is the focal point of its innovative product offering. However, the company’s financial performance has been inconsistent, primarily due to rising interest rates negatively impacting its leasing agreements and revenue growth. Despite the current challenges, the company’s low valuation presents an opportunity for a potential upward revision.
Yet, with management revising guidance downward for the rest of 2024, value investors may want to put this on a watch list and revisit once underlying conditions show improvement.
InMode Battles Elevated Interest Rates
InMode specializes in developing, manufacturing, and marketing radio-frequency (RF) based medical technologies. These devices aim to enhance existing treatments and make possible new surgical procedures across various medical disciplines. Although InMode operates globally, most of its revenue is generated in the U.S., where demand for procedures like liposuction is highest.
In many cases, aesthetic industry treatments are optional and not covered by insurance, so patients frequently finance much of the cost of these elective treatments. Rising interest rates over recent years have impacted this, leading to decreased demand for these procedures.
InMode’s Recent Financial Results and Outlook
InMode’s financial results for Q1 2024 fell short of analysts’ estimates. The company reported revenue of $80.28 million, missing consensus estimates of $93.02 million. Proprietary surgical technology platforms contributed 84% of its quarterly revenues, with the remaining percentages shared among its traditional laser, non-invasive RF, and hands-free platforms. Revenues from consumables and services hit a quarterly high of $22.5 million, indicating a 13% increase compared to Q1 2023.
GAAP net income of $23.7 million decreased from the $40.5 million recorded in Q1 of 2023. Earnings per share (EPS) of $0.32 also fell below the expected $0.43. As of the end of the quarter, the company held a total cash, cash equivalents, and marketable securities position of $770.5 million.
Management lowered its 2024 financial outlook in several key areas. The anticipated full-year revenue is expected to range between $485 and $495 million, down from the earlier guidance of $495 to $505 million. The Non-GAAP gross margin is also predicted to go between 82% to 84%, a step down from the previous 83% to 85% range.
Non-GAAP operating income is also expected to drop, forecasted to be between $169 million and $174 million, compared to the earlier estimate of $217 million to $222 million. Non-GAAP earnings per diluted share are anticipated to be between $2.01 and $2.05, a decrease from the previous guidance of $2.53 to $2.57.
What Is the Price Target for INMD Stock?
Analysts following the company have been cautiously optimistic about the stock. For instance, UBS analyst Danielle Antalffy recently lowered the price target on the shares from $26 to $20 while maintaining a Neutral rating. She noted the recent macroeconomic headwinds, though she sees the company competitively positioned once the environment improves.
Overall, InMode is rated a Moderate Buy based on four analysts’ recommendations and price targets recently assigned. The average price target for INMD stock is $27.67, representing a potential upside of 59.30% from current levels.
The stock’s downward trend has continued over the past few years, and shares are down by 21% this year. The stock trades at the low end of its 52-week price range of $16.72 – $48.25 and continues to demonstrate negative price momentum by trading below the 20-day (17.97) and 50-day (18.45) moving averages. With a P/E ratio of 8.23x, the stock appears considerably undervalued to peers in the Medical Devices industry, where the average P/E is 35.68x.
Final Insights on INMD
InMode has experienced a rough patch with its primary revenue stemming from the U.S. market, where demand for various cosmetic procedures has been depressed as the cost of these elective treatments became more daunting for consumers as interest rates rose.
Despite posting lower-than-expected revenue for Q1 of 2024 and reducing its financial outlook for the rest of the year, the company shows promise for upside revision as the interest rate environment improves. Its current valuation potentially offers an opportunity for investors with a keen eye for value. However, this may be the time to add INMD to a watch list and revisit it as the rate environment improves.
