InMode: Beauty In The Eyes Of The Beholder (NASDAQ:INMD)

InMode (INMD) has rapidly become one of my darlings since it went public in August 2019. Shares went public at levels in the mid-teens as a big momentum induced rally put a level of $55 on the board just three months later.

What followed was a brief pullback towards essentially the IPO level amidst the COVID-19 outbreak. Shares have regained a lot of lost ground, currently exchanging hands at $41 again.

A Quick Recap

InMode is a minimally invasive technology that develops human aesthetics therapies, all based on “energy” methods which focus on face, body contouring and medical aesthetics. Compared to actual invasive methods, benefits include less pain and fewer scars.

With an operating asset valuation of just $325 million at the offer price when the company went public, the valuations looked very modest with 2018 sales having doubled to $100 million and adjusted operating profits totaling $31 million that year. While this resulted in very modest valuation multiples, the second-quarter run rate for 2019 suggested revenues of $150 million a year and adjusted operating profits of $60 million, for earnings close to $1.50 per share. This resulted in a less than 10 times earnings multiple, not even accounting for a solid net cash position and noting that growth was quite impressive.

For that reason I initiated a big position, although truth be told I have been betting a bit on a momentum induced rally, as I head some real fears about the competitive strength and its solutions, hard to guess for an outsider like me. This was driven by the combination of the growth and low valuation, as the proposition almost looked too good to be true.

As it turned out, the company reported solid improvements in the third and fourth quarter of 2019. Revenues totaled $47 million in the final quarter of that year and operating profits were at $18 million. Even if I conservatively use the diluted share count instead of the reported basic share count, I pegged earnings power close to $1.50 per share and net cash was close to nearly $5 per share. Needless to say, multiples expanded a bit with shares still trading near the $50 mark early in 2020.

What Now? – 2020

The company guided for 2020 sales of $190-$198 million and $76-$80 million in adjusted operating earnings, basically the annualized numbers reported for the fourth quarter of 2019. This suggested that growth has stopped in a big way, and given the sustainability of the business model, or at least my questions on that, I would not be willing to pick shares at a market or premium to the market multiple.

First-quarter results revealed that revenues rose 32% on an annual basis to $40 million. This is down quite a bit from the fourth quarter, as activity almost came to a standstill in March for obvious reasons. As the company anticipated normal activity levels in March, operating profits fell to $6.0 million, for earnings of $0.15 per share on a diluted basis,

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Chowder beauty in the spoon of the beholder

Thick enough for you? The chowder that launched a hundred responses. (Steve Barnes/Times Union.)

Thick enough for you? The chowder that launched a hundred responses. (Steve Barnes/Times Union.)

Steve Barnes/Times Union

Sitting on a restaurant patio one chilly evening last week, I ordered New England clam chowder. What came out, I was told, was the very last cup, and it seemed so. Thick enough that a spoon planted vertically stayed upright for 3 minutes — until I became impatient watching, not because the spoon keeled over — the chowder clearly had been reducing on the stove or in the steam table all day.

Thick chowders appeal to me, at least in part because the variation on classic New England that was the house soup at my father’s Schenectady restaurant during my childhood and teenage years, The Oxbow Inn, was plenty thick, though not spoon-standable. I made gallons of it every Saturday for the couple of years during high school that I cooked weekend lunches and prided myself on achieving a hearty thickness.

No doubt some customers found it gloppy, and that was certainly the verdict among many on Facebook when I posted the accompanying photo of my chowder from last week. In about 12 hours overnight, more than 120 comments were submitted, 85 percent of which were, to varying degrees, disapproving. All of the chefs who chimed in were opposed, as were laypeople who variously compared it to oatmeal, wallpaper paste or, as one memorable response put it, “caulk for a ’47 Chris-Craft.”

I liked the chowder. Though utterly lacking in finesse, it was rich with clam, potato and cream, and while it may have been a one- or two-note taste experience, they were, for me, an appealing couple of notes.

Results

Should chowder be thick enough to support a spoon standing straight up?

No: 85 percent
Yes: 13 percent
As long as it tastes good: 2 percent


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