Hi,
I’ve got into the habit of writing why I’m buying or selling a stock, here’s a recent pitch I wrote for myself on Inmode. I’m sharing it here to get a bit of feedback and advice on why I might be wrong this:
" InMode sell medical devices which are used in non-invasive aesthetic procedures – typically body sculpting, breaking down and re-modelling fat, skin tightening and similar cosmetic procedures (https://InModemd.com/) using radio frequency machines. It’s an Israeli company founded by the CEO in 2008 (he owns 3.4% of the company). InMode operates globally with 66% revenues from the US, 11% Europe and rest international. Here’s why I think InMode is a buy:
- It’s a market leader in a sector that’s predicted to grow by more than 50% over the next 7 years (Non-Invasive Aesthetic Treatment Market Size, Share 2023-2030). As populations age and become wealthier, people have a desire to look better.
- InMode has experienced profitable double-digit growth over the past 5 years.
- The market cap is $1.85bn and the company has $547m in cash on its balance sheet with very little debt.
- It has a gross margin of 84% with a free cash flow margin of 34%.
- The company is run in a conservative manner - relatively low executive pay, short property leases and focused resource usage (revenue per employee is $945K, with Free Cash Flow per employee at $322K).
- Return on capital employed is 26% with a cost of capital at 18%.
- The current P/E is 10.
- Very little share dilution over the years. Between 2016 and 2022 revenue per share increased from $0.36 to $5.36, Free Cash Flow (FCF) per share increased from $0.04 to $2.11.
The company is a leader in its market with. Its moat is demonstrated by high margins and is attributable to its patents, technology, regulatory approvals (29 FDA) and relationships with medical professionals in various countries.
I plotted some key metrics into a conservative Discounted Cash Flow model
| 5 year values | Low growth | High growth | Comments |
|---|---|---|---|
| Discount rate % | 10 | 10 | |
| Price ratio | 14 | 20 | 20 is the average price to free cash flow value over the past 5 years |
| FCF growth | 10 | 20 | Average over the past 5 years has been 36% |
| Shares outstanding growth % | 6 | 6 | |
| Fair value | $21 | $47 | |
| Future price | $34 | $76 | |
The stock, at $22, is near its 52 week low ($19). It’s fallen nearly 50% over 6 months whilst the fundamentals remain strong.
I view the stock as an asymmetric bet. On the upside, there’s the potential to double or triple, on the downside a 10-20% loss.
Happy to hear views and counter thoughts…"
Thanks