InMode: Long Term Alpha Development – Playing the Insurance Game Next

Legacy of Caesarea

Investment Thesis

InMode Ltd.’s opinionNASDAQ: INMD) is still poised for growth, given their strong track record and good inflation performance thus far. As the company continues to expand globally, we expect to increase its revenue and profitability as well. growth, which can lead to a long-term appreciation of the stock price.

Meanwhile, we expect INMD to further expand its medical facilities, with potential benefits for insurance reimbursement in the future. The move would help expand the consumer base regardless of inflation and recession, allowing the company to continue its current aesthetic. Thereby, encouraging the estimation of INMD costs going forward.

InMode May Enter the Insurance Game Ahead

With the recent approval of INMD’s EmpowerRF device for women’s health and wellness by Health Canada in June 2022 and US FDA in August 2021, the company may be expanding into the medical field further, beyond traditional cosmetics. The device received regulatory approval to improve urinary symptoms, along with genitourinary syndrome of menopause, chronic pelvic pain, and bleeding disorders. Although the INMD device is not insured, there is a real possibility that this technology may be taken up by several insurers in the future, based on the overall need for the service and its proven results.

Meanwhile, ELITONE is the only medically-insured erectile dysfunction device that has been proven to effectively relieve urinary incontinence in women. The treatment method used is ELITONE has the same effect as Image of INMD EmpowerRF and VTone attachment. All of these medications help the pelvic floor muscles to reduce bladder leakage from now on. Assuming the INMD device is approved for reinsurance, we can expect to see increased demand in the future, because global urinary incontinence The equipment market is expected to grow from $2.09B in 2020 to $6.17B by 2030, at a CAGR of 11.8%.

This move will increase INMD’s revenue and profit growth in the future, as it will open more doors for clinical research/practice and non-invasive practices, instead of using cosmetics. The company’s recent growth in the health and women’s health space is already accelerating, with guidance raised to $30M in revenue by the end of FY2022, instead of the original estimate of $20M. It will represent a good 6.9% of its total revenue then, with great potential for multiple expansions going forward.

Therefore, it was understood that INMD is reviewing several non-invasive pipelines, including gynecology, ophthalmology, ENT, and others. This approach can protect the benefits of INMD and high prices during the crisis of inflation, due to the attractiveness of the treatment that has a short period of time compared to surgery. However, since this is pure speculation, it remains to be seen whether INMD will be able to sustain its current rally, given the market’s high valuation and economic slowdown. We will see.

INMD Continues to Deliver Impressive Reports Despite Temporal Winds

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INMD has really benefited from re-opening the cadence so far, with a strong demand for medical and cosmetic process. As of FQ2’22, the company reported revenue of $113.55M and gross margin of 83.3%, representing a 30% model year-over-year increase despite a significant 2.1 percent YoY decline, respectively. The revenue consisted of 87% of equipment sales and 13% of food, the latter representing stellar growth YoY due to the expansion of the installed base.

Meanwhile, INMD reported that its total revenue was $44.05M and revenue was up 38.8% in FQ2’22, representing a 4.7% increase despite a further decline of 8.1 percent YoY, respectively. The decline in corporate costs is due to high inflation, which continues to drive up costs in many industries. Therefore, its sample size reflects INMD’s ability to market globally because this issue affects many companies around the world.

The price of INMD shares

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On the other hand, INMD continued to invest in its operations, with total operating income of $45.39M in FQ2’22, representing an increase of 25.5% QoQ and 37.2% YoY. However, it is important to note that the amount of revenue growth has been stable to date, accounting for 40% of the company’s revenue in FQ2’22, consistent with historical figures.

INMD Cash / Equivalents, FCF, and FCF Margins

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Therefore, given its profitability and low capital expenditure, we are not surprised by INMD’s generation of Free Cash Flow (FCF) to date, with FCF of $46.42M and FCF margin of 40.9% in FQ2’22. While these figures represent an impressive YoY decline in FCF margins, we are not overly concerned as inflation is a short-term problem. Additionally, INMD continues to report that the $88.4M increase in military spending is comparable on its website to FQ2’22, although a large portion was redeemed in FQ1’22.

INMD Net PPE and Capex

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The main reason that INMD continues to command high cash flow, net income, and FCF margins at this time, is that it simply delivers on all of its production requirements while maintaining reasonable control. This allows the company to carry smaller quantities without spending more on production and storage. Therefore, the plan will help INMD to report the low assets of PPE of $ 6.98M in FQ2’22, which represents only 1.3% of the company’s assets of $ 523.21M, while reporting a total of $ 0.56M in the same period.

INMD Diluted Shares Preferred and Stock-Based Compensation

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Over time, we’ve unfortunately seen an impressive increase in INMD’s stock-based compensation (SBC) with $6.35M reported in FQ2’22. It represents a sudden increase of 205.5% QoQ and 215.2% YoY. Despite this, investors have nothing to worry about, as the company has also maintained its stock volume year-to-date, with 84.66M reported in FQ2’22. It represents an 11.2% share reduction since its IPO in 2019, supported by several share buyback programs to date. In particular, for the 1M shares announced in March 2022, which reduced its shares by 1.2% and FQ2’22.

We’re Likely to See an Upside in Its Future Earnings and Profits

INMD Cost Estimates and Total Costs

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Over the next 3 years, INMD is expected to show revenue growth and revenue growth at a CAGR of 15.01% and 11.39%, respectively, compared to its historical 5Y CAGR of 72.99% and 244.50%. It is clear that the company’s net income will stabilize over time, from 46.1% in FY2021 to 41.9% by FY2024. Even so, we are encouraged as it still represents a significant improvement from its previous revenue of 39.1% in FY2019.

Given INMD’s global growth, we expect to see its revenue and profit growth continue to grow. As of FQ2’22, the company reported a 33% YoY increase in its global sales (from the US), which make up 36% of its revenue. Therefore, assuming a successful market penetration in major cosmetic markets such as China, Korea, and Brazil, an increase in economic growth of 22% is possible by FY2024. Therefore, INMD is still poised to grow after reopening the cadence, starting globally unobtrusive decorations the market is expected to grow from $53.8B in 2021 to $190.5B in 2030, at a CAGR of 15.2%.

For FY2022, INMD guided for revenue of between $425M to $435M and EPS between $2.11 and $2.16, versus the consensus estimate of $432M and EPS of $2.16. This would represent YoY growth of 20.96% and 5.2%, respectively. Thus, it is possible to push long-term price appreciation due to its high value streams and future realizations.

Therefore, INMD Stock is a buySell, or Hold?

INMD 5Y EV/Revenue and P/E Valuations

INMD 5Y EV/Revenue and P/E Valuations

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INMD is trading at an EV/NTM Revenue of 4.95x and an NTM P/E of 14.84x, lower than its 5Y of 7.67x and 25.25x, respectively. The stock is trading at $34.33, down 65.4% from the 52-week high of $99.27, though at a 66.6% price from the 52-week low of $20.60. It is clear that the stock recovered by 20% in the last few days, the model call for FQ2’22.

The price of shares INMD5Y

The price of INMD shares

Searching for Alpha

Therefore, despite the economic estimate of $48 and 39.82% upside, we prefer to wait a little longer for the current rally to be digested. Long-term investors considering these strong additions can invest in the mid-$20s for a better margin of safety, though preferably in the low $20s for maximum profit.

So, we INMD stock rating as Hold for now.