Wellness Platform Will Diversify Offerings Yet Incur Cost Pressures

Key Takeaways

• InMode's international expansion and new platform for the wellness market are strategies to drive future revenue growth and offset U.S. challenges.
  
• Ongoing share repurchases and a strong balance sheet suggest a focus on increasing shareholder value and strategic growth opportunities through M&A.
  
• Macroeconomic challenges and rising costs are squeezing InMode's revenue and margins, with U.S. market weakness and tariffs further threatening profitability.

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 plans to unveil a new platform later this year designed for the wellness market, which aims to expand the company's product portfolio and tap into a new segment. This is expected to bolster future revenue growth as it diversifies and increases the product offering.
  
• The company is capitalizing on international market growth, with sales outside of the U.S. accounting for a significant portion of revenue and reaching record sales in Europe. Continued expansion internationally could drive revenue growth and partially offset U.S. market challenges.
  
• InMode's ongoing share repurchase programs, which have seen significant capital returned to shareholders, could positively impact earnings per share (EPS) due to a reduced share count, thereby potentially increasing shareholder value even amidst revenue headwinds.
  
• Management's decision to maintain its workforce and invest in new product development, despite current market challenges, indicates a strategic focus on long-term growth, which may lead to increased revenues and margins when market conditions improve.
  
• The company's strong balance sheet with substantial cash reserves provides flexibility to pursue strategic M&A opportunities, which could potentially enhance future revenue streams, product offerings, and earnings growth.

InMode Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming InMode's revenue will grow by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 44.8% today to 26.9% in 3 years time.
• Analysts expect earnings to reach $113.5 million (and earnings per share of $1.84) by about May 2028, down from $175.8 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $158.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.6x on those 2028 earnings, up from 5.6x today. This future PE is lower than the current PE for the US Medical Equipment industry at 31.6x.
• 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 8.95%, as per the Simply Wall St company report.

InMode Future Earnings Per Share Growth

Risks

• The ongoing macroeconomic uncertainty and soft consumer demand have led to a significant slowdown in elective procedures, adversely affecting InMode's revenue and potentially impacting future earnings.
  
• Increased interest rates have raised the cost of leasing packages for InMode's products, making it more expensive for physicians and clinicians to invest in new equipment. This could further reduce revenue and profit margins.
  
• The U.S. market, which has been a significant contributor to InMode's revenue, has weakened more than international markets, posing a risk to revenue growth and overall profitability.
  
• Tariff impacts on imported products from Israel are anticipated to reduce gross margins by 2% to 3%, which could negatively affect net margins and earnings.
  
• InMode's decision to maintain its current staffing levels and operational costs despite reduced revenue and profit margins could lead to decreased operating efficiency and lower net income during prolonged slowdowns.

Valuation

• The analysts have a consensus price target of $17.25 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 $24.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $422.5 million, earnings will come to $113.5 million, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $14.42, the analyst price target of $17.25 is 16.4% 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.