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,