Television company

1 company is disrupting plastic surgery, not patients

IIn a world where the word “selfie” translates into every language, more and more people want to look their best, preferably without surgery. InMode (NASDAQ: INMD) rides the wave of safer, faster results for patients, with industry-leading minimal, non-invasive RF technology that replaces painful liposuction, wrinkle reduction and body contouring. Here’s how technology benefits doctors and patients.

Cut through fat

InMode uses bipolar radio frequency technology for body sculpting, fat reduction, wrinkle reduction, and muscle toning that previously required plastic surgery, scarring, and long recovery times. Its devices deliver thermal energy to oily or wrinkled areas of the body, face and neck. The resulting heat liquefies fat, which the devices suck out, while tightening the skin and connective tissue around the treated area so patients don’t end up with excess loose skin. Its technology can often provide deeper and more extensive results than competing technologies, and some minor procedures can even be performed hands-free by attaching the device to the patient.

InMode sells its systems through its direct sales force and also through third-party distributors. After the initial sales, InMode sells the consumables needed for each procedure. As the number of systems and procedures installed increase, recurring consumable sales also increase.

Image source: Getty Images.

For example, in the first quarter of 2022, consumables grew 79% to $14 million, or 16% of overall revenue. For the whole of 2021, InMode sold a record number of consumables representing 11% of overall revenue. The rapid growth of consumables shows that physicians are increasingly adopting InMode systems and patient demand continues to grow.

Additionally, InMode offers devices that support hair removal, vein problems, and skin rejuvenation, like many other companies. By opting for InMode, physicians can deal with a single company representative instead of multiple representatives, creating a network effect for the company. InMode’s long history of successful procedures makes it difficult for competitors to enter the market in any meaningful way.

According to InMode’s 2021 Annual Report, its technology is the first and only non-invasive RF-based body contouring technology that permanently kills body fat. InMode’s systems offer either pulse therapy, which does not burn the skin, or continuous therapy, which monitors skin temperature to ensure skin is not burned during procedures. So far, the company’s only real rival in non-invasive cosmetic treatments is AbbVieit is (NYSE: ABBV) Allergan, which sells CoolSculping systems that freeze fat cells, which are later expelled from the body. Although CoolSculpting systems require fewer treatments, their results may not be permanent.

The global market for RF-based devices is expected to grow at over 12% per year to reach $3.2 billion in 2030. New physicians have adopted InMode’s systems, and existing physicians have rapidly expanded into new InMode systems during the last years. Equipment sales jumped 72% in 2021. This demand translates into gross margins consistently above 80% and free cash flow margins above 38% in each of the past three years. And InMode’s annual net income has grown every year since its IPO, from $300,000 in 2016 to more than $165 million in 2021.

A promising before-after image?

Rising interest rates, among other things, have caused a sell-off in growth stocks this year. InMode shares are down significantly from their all-time highs in November 2021. Regarding the company’s first quarter results, management reiterated revenue guidance in the range of $415 million to $425 million. , a growth of around 17.5%, its weakest since its IPO. . That’s a big downturn from its post-COVID sales growth of 73% in 2021.

The guidance also included non-GAAP diluted EPS of $2.06 to $2.11 for the full year 2022, a slight increase from $2.05 in 2021. If the guidance holds, the stock trades at just over 10 times forward earnings – a compelling multiple for a competitively advantaged growing company, and well below the company’s five-year average P/E of almost 28x.

The main risk for the stock is a large-scale recession that could cause patients to forgo elective spending. But given the nearly $400 million in cash, marketable securities and bank deposits on the company’s balance sheet in the first quarter, InMode should be able to weather any storm that comes its way.

The precipitous drop in InMode shares appears to be caused by the same supply chain and inflation issues that have plagued growth stocks this year. Cautious investors may want to wait for signs of easing from these issues before plunging.

10 stocks we like better than InMode Ltd.
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*

They just revealed what they think are the ten best stocks investors can buy right now…and InMode Ltd. was not part of it! That’s right – they think these 10 stocks are even better buys.

View all 10 stocks

* Portfolio Advisor Returns as of April 7, 2022

Fool contributor BJ Cook holds no financial positions in the companies mentioned. The Motley Fool holds positions and recommends InMode Ltd. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.