1 Cosmetic Stock To Buy Now

According to recent research, the total addressable market for the cosmetic surgery industry is expected to reach $67 billion by 2026. The increased prevalence of medical spas and beauty clinics – as well as changing attitudes towards cosmetic treatments in general – has contributed towards growing demand for these services over the last few years.

 

As “selfie culture” has taken hold across the globe, people have never before felt more pressured to look younger and feel better in themselves than they do today. A major consequence of this has been the rise of minimally and non-invasive cosmetic procedures, which, as a sub-sector of the wider industry itself, is slated to expand at a compound annual growth rate (CAGR) of 7% until 2024.

 

One of the most important companies operating in the non-surgical cosmetic space at the moment is InMode. InMode is an Israel-based medical technologies firm that designs, manufactures and sells novel radiofrequency (“RF”) and laser treatment platforms.

 

The business primarily focuses on applications used to tighten skin, improve texture and complexion, and remodel body composition without any visible scarring or extensive surgery.

InMode’s Chief Financial Officer, Yair Malca, believes that the demand for non-invasive treatments is now at “unprecedented levels”, with patients desperate for aesthetic procedures but lacking the desire for full-on plastic surgery. It’s this “treatment gap” – as the company calls it – that IMND operates in, selling its range of minimally invasive surgical equipment to physicians, clinics and health centers.

 

Its solutions are intended to be office-based, affordable, and requiring no more than any other out-patient procedure. InMode reckons there’s a significant opportunity here, with 40 million laser procedures performed in each year, and around 17,000 trained physicians in the US market with qualifications in the plastic and dermatology specialties.

 

The firm was initially in founded in 2008, and went public in 2019. Sales of its RF platforms accounted for around 90% of the business’s revenues in 2020, with the rest being made up of consumables, or items which have to be replaced after every procedure. 

 

Platforms – sometimes referred to as workstations – can facilitate a number of differing treatments depending on the specific model and the “hand-pieces” used. Hand-pieces are handheld devices that are customized to deliver the treatment as needed.

 

InMode recently reported record revenues of $110.5 million for the fourth quarter 2021, growing overall sales 47% year-on-year, and surpassing the $100 million mark for the first time ever. The company also smashed another barrier with its record GAAP net income of $52.7 million. 

 

Full year 2021 numbers were even better, with record sales of $358 million up 73% from 2020. International revenues also increased 112%, and diluted GAAP earnings per share were their highest ever at $1.92, as was its GAAP net income of $165 million.

Price action for InMode has been choppy lately, with the company losing well over 50% of its value since last November.

 

In the “Valuation” section later on in this article, we’ll discuss what this pullback signifies for investors with respect to the company’s worth at the present time.

 

 

To test whether InMode’s business model is robust enough, we’ll examine some of the brand’s key performance indicators and growth drivers below:

 

 

Not only does INMD have an enviable suite of products to its name, but the company also has patent protection for its portfolio as well.

 

The firm’s ability to police its own intellectual property doesn’t just give it an edge on its already existing competition, it also acts as a defensive moat against other companies wishing to move in on its territory.

 

In addition to this, InMode’s extensive roll call of patents makes it a target for acquisition by bigger medical technology enterprises, especially those looking to make a play for what is a rapidly growing sector.

 

 

InMode reported it had grown its globally installed product base by 29% at the close of the third quarter 2021, bringing its worldwide in use workstations to a total of 10,350 units. Of these, 5150 were placed in locations within the US, representing a 21% increase from the previous quarter in that region alone.

 

The company’s sales growth is also promising, with INMD adding 17 countries to its global footprint last year, while its international revenues grew 69% year-on-year.

 

Expansion in Europe, Asia and Latin America were major contributions to the firm’s success in 2021, with revenues generated outside the US now standing at 33% of its overall sales.

 

 

The RF generators that InMode supplies are able to perform a variety of different treatments simply by using one of its many specialized hand-pieces, such as the Morpheus8, the Lumecca, or the AccuTite. And because of this inbuilt optionality and exclusive distribution opportunity, INMD strengthens its customer moat with every generator that it sells.

 

With InMode’s focus almost entirely on the minimally invasive surgical space, it makes sense to compare it to other companies engaged in these types of procedures, rather than those involved in operations which require greater anesthesia and more extensive post-surgical care.

 

Given these criteria, the two firms which fit this description the most are Cutera, Inc. (CUTR) and Apyx Medical (APYX). Both these companies specialize in procedures that don’t require excisional surgery, and each focus on dermatological treatments too.

In a head-to-head analysis, InMode comes out on top for most major financial metrics. For instance, INMD’s debt burden of just $3.5 million beats CUTR’s $151.4 million, while InMode’s free cash flow at the end of 2020 of $97.9 million easily outperforms Cutera and Apyx who had negative levels at $(3.7) million and $(10.7) million respectively.

 

InMode also has the largest market capitalization at $3.9 billion, and its trailing twelve month return on equity of 39% is superior to CUTR’s and APYX’s 15% and -25%.

 

Despite InMode’s excellent balance sheet and its attractive product portfolio, there are still a few risks on the horizon for the business going forward:

 

 

While it’s great to see the market in elective cosmetic procedures growing at a substantial rate, it remains the case that for all their popularity, aesthetic interventions are, more-or-less, of a discretionary nature. This means that patients are essentially free to delay any treatments indefinitely, which grows more likely when or if their financial situation worsens.

 

Furthermore, there’s no guarantee that we’ve seen the last of the pandemic – and if lock-downs or other restrictions are reinstated, the demand for cosmetic surgery is almost certainly going to take a hit. That said, InMode appears to have factored this risk into its first quarter 2022 guidance, with a conservative outlook aiming to keep investor expectations in check.

 

 

The issues surrounding the global supply chain crisis have yet to be resolved, and, for companies that live at the cutting-edge of the technological world, the ongoing semi-conductor shortage presents a real and continuing problem. 

 

So far, however, InMode has coped with this constraint fairly well, with contingencies already in place to mitigate the worst of its effects. For instance, the company has two discrete factories in operation manufacturing its products in Israel; it has multiple suppliers in place from which it can source its components; and there are plenty of shipping firms it can use to get its products out to customers.

 

But if these contingencies were to fail at some point, it would clearly put pressure on InMode’s ability to continue its operations in a seamless manner.

 

 

The company’s growth potential over the long-term is likely to slowdown, and this could be problematic, especially given InMode’s heavy reliance on its sales of hardware and not so much on recurring streams of revenue.

 

Additionally, the firm will have to continually find new clinics and physicians with which to sell its equipment – which could very well prove difficult.

 

Given InMode’s record beating GAAP net income, and its history of profitability over many preceding quarters, it seems apparent that the company’s no longer a growth-stage entity anymore.

 

Still, the firm’s margin and revenue increases would have you think differently, with INMD averaging a gross income fraction of 85% for the best part of half a decade now, and its top-line up 47% at the last time of asking.

 

Furthermore, InMode’s P/E ratio of 23x is right inline with the rest of the healthcare sector – which, when you consider the company’s stellar margins and general growth metrics, is simply superb.

 

But taking the firm’s 2022 guidance at face value, it seems that any multiple expansion might be coming to an end – although that’s still no reason to avoid the stock. Interestingly, the company also reported record consumable sales in both the US and worldwide – which certainly bodes well for the business actually beating its own forecasts in the coming year.

 

With interest rates on the rise, it’s probably not a good time to have your portfolio overexposed to growth companies right now. For investors interested in InMode stock, that shouldn’t be a problem. The company is leaving its growth days behind, and evolving into a more mature business.

 

Its financial and valuation metrics are excellent, and the brand still has plenty of market space to exploit. There’s even the possibility of a dividend issue or stock repurchase on the horizon, especially now that the company has a cash position of $416 million burning a hole through its balance sheet.

 

Its price is undoubtedly cheap at the moment, and, given its low-risk profile, there’s no better time than today to open a position in INMD.

#1 Stock For The Next 7 Days

When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.

Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.

See The #1 Stock Now >>