Launch Of IgniteRF And OptimasMAX May Improve Market Position, But Geopolitical Risks Loom

Key Takeaways

• Adoption of new platforms and strategic managerial changes could drive revenue growth, market position, and improved operating margins.
  
• Strong R&D focus, innovation, and a share repurchase program are poised to enhance shareholder value and maintain high gross margins.
  
• Persisting revenue decline, international sales drop, and increased costs amid macroeconomic challenges and geopolitical risks threaten InMode's growth and profit stability.

Catalysts

Designs, develops, manufactures, and markets minimally invasive aesthetic medical products based on its proprietary radio frequency assisted lipolysis and deep subdermal fractional radiofrequency technologies in the United States, Europe, Asia, and internationally.

• InMode is optimistic about the adoption of its newly launched platforms, IgniteRF and OptimasMAX, as delivery challenges have been resolved. This could drive future revenue growth as these innovative technologies are better positioned in the market.
  
• Plans to launch two new platforms in 2025, including the fractional laser CO2, which targets the facial rejuvenation and resurfacing market, may further boost InMode’s revenue and enhance market position.
  
• The company has implemented strategic managerial changes in key regions (e.g., Europe, USA, and Asia), potentially enhancing sales and marketing effectiveness, which could lead to improved revenue and operating margins.
  
• InMode's strong focus on innovation and R&D could enable the company to maintain high gross margins and drive long-term earnings growth as multiple suppliers mitigate supply chain risks and support manufacturing efficiency.
  
• The ongoing share repurchase program, targeting up to 10% of the company's share capital, coupled with strong free cash flow, aims to create shareholder value by increasing EPS through a reduced share count.

InMode Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming InMode's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 45.9% today to 37.0% in 3 years time.
• Analysts expect earnings to reach $163.8 million (and earnings per share of $2.22) by about March 2028, down from $181.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $182.6 million in earnings, and the most bearish expecting $130.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.2x on those 2028 earnings, up from 7.0x today. This future PE is lower than the current PE for the US Medical Equipment industry at 28.7x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.75%, as per the Simply Wall St company report.

InMode Future Earnings Per Share Growth

Risks

• The decline in total revenue by 20% in 2024 compared to 2023, driven by reduced demand for minimally invasive procedures and high interest rates, poses risks to InMode's future revenue growth if these conditions persist.
  
• Decrease in international sales by 19% for the full year and 23% for Q4 compared to the previous year indicates potential challenges in gaining or maintaining market share outside the U.S., which could impact earnings.
  
• Intense headwinds in the aesthetic industry and broader macroeconomic factors that were not foreseen might continue to affect demand, suppressing potential revenue and net margins.
  
• The reduction in operating margins from 2023 to 2024, compounded by increased production costs and lack of revenue from new platforms, may threaten their capacity to maintain historical profit levels and affect earnings potential.
  
• Supply chain challenges and geopolitical risks, such as the impact of the war in Israel, could disrupt operations and limit the ability to meet demand, potentially affecting revenue and earnings stability.

Valuation

• The analysts have a consensus price target of $21.333 for InMode based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $29.0, and the most bearish reporting a price target of just $16.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $443.2 million, earnings will come to $163.8 million, and it would be trading on a PE ratio of 9.2x, assuming you use a discount rate of 8.8%.
• Given the current share price of $18.18, the analyst price target of $21.33 is 14.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.