InMode: Steady State Revenue In Sight (NASDAQ:INMD)

Daniel Grizelj

The technologies InMode Ltd. (NASDAQ:INMD) develops fill a gap in the cosmetic surgery market between laser procedures and plastic surgery. This has driven growing adoption of the company's devices. I believe the company's capital revenue will likely start to reach a steady-state within the next couple of years as adoption slows. Depending on market share and device lifespan assumptions, the picture could change quite a bit. Read on to see what I project in my base case, downside case, and upside case for InMode's future.

InMode Ltd. sells technology and machines across the globe for performing minimally invasive cosmetic procedures. It offers technologies for face contouring, body contouring and remodeling, women's wellness, and hair removal. As can be seen below in the slide from the latest investor presentation, InMode seeks to innovate in a space between two traditional types of treatments. On one end, plastic surgery (including liposuction) can require long recovery and high expenses. Laser procedures on the other end of the spectrum are totally non-invasive but they can only treat a limited set of cases. This leaves a "treatment gap" in the middle, which has already proven to be ripe with opportunities for the company.

InMode Investor Presentation

InMode covers this in-between space with a range of equipment, outlined in the table below. 84% of the company's revenue comes from "minimally invasive" Surgical/RFAL and SARD devices (all references to InMode's current financials come from the 3rd quarter financial results), though the company also offers traditional non-invasive laser devices.

InMode Investor Presentation

In the nine months ended September 30th, 2022, InMode made $180,640,000 of revenue in the U.S. selling equipment, which was 25% more than what it made in the same period the year prior. Capital equipment revenue was by far the majority of the company's revenue; consumables and service revenues were only 13% of total revenue. Over the course of the year from Q3 2021 to Q3 2022, the unit installed base in the U.S. increased from 5,150 to 7,260. From these numbers, it can be assumed that the price for these units is in the order of $100,000 each. Indeed, I found one EmbraceRF listed online for $89,999.

InMode is quite innovative in minimally invasive body and face sculpting and remodeling. However, people still have options. If patients are not willing to go forward with full-on plastic surgery, they could go for a non-invasive fat reduction technology such as Coolsculpting™, Liposonix™, Emsculpt™, Vanquish™, or Zerona™. Likewise, they could opt for non-surgical skin tightening such as Pelleve™, Thermage™, Ulthera™.

From this competitive landscape, I can begin to build a picture of what InMode's steady-state market share could look like. InMode estimates there are more than 100,000 surgically-trained physicians in the U.S and more than 200,000 globally. A broken stick model shows what market shares could look like with 10 major players.

Author created using the Broken Stick Rule from Wolfram Alpha

On the high end of this ranking, the #1 player would have 29% market share while on the low end, the #10 player would have only 1% market share. If InMode is somewhere in the middle of the pack (i.e., 5th in the market), then that would give InMode about an 8.5% market share. If each physician that buys from InMode only buys one unit, that works out to be about 17,000 units installed worldwide, not far off from the current installed base of 15,480 units. This may be on the lower end of the range given that the company grew its installed base over 5,000 units from 10,350 units in just one year. However, using 17,000 units as a starting point, it would be helpful next to dig in further into what this could mean for revenues.

To understand InMode's future, it is necessary to estimate revenues from the two sources of revenue for the company: capital revenue and consumables and services revenue.

For capital revenue–that is, revenue from sales of new devices–my expectation is that InMode will reach its entitled market share sooner rather than later. At that point, most of its capital revenue will come from replacing old equipment rather than new adoption, so I needed to assume a device lifespan to analyze what the capital revenue could be. There is no direct data on equipment lifespan for InMode that I could find, but given that most of the attachments are consumables, the heart of the machine could be thought of as similar to a desktop computer, which typically lasts five to eight years. For this analysis, I assumed five years. Continuing to assume an installed unit base of 17,000, this results in about 3400 units being sold per year, amounting to ~$340M in capital revenue at $100k per unit.

Consumables and service revenues would become a higher percentage of InMode's total revenue as capital revenue growth slows. One way to estimate this revenue is to look at 2022's consumables and services revenue compared to 2021's installed unit base. I figured that the $42,934,000 of consumables and services revenue in the nine months ending September 30th 2022 came primarily from the prior year's installed unit base of 10,350 units. That works out to be a little over $5500 in revenue per installed unit per year. At a steady state of 17,000 units, that would result in about $94 million in consumables and service revenue, and a total revenue of $434M, which is a little bit less than the $454M that InMode is estimating for 2022.

Number of surgically trained physicians

200000

InMode Market Share (broken stick model)

8.5%

Installed Unit Base

17000

Lifespan (years)

5

Replacement Units Sold

3400

Average Price per Unit

$100,000

Capital Revenue

$340,000,000.00

Unit Revenue from Consumables and Service per year

$5,530.95

Consumables and Service Revenue

$94,026,151.37

Total Revenue

$434,026,151.37

% Capital Revenue

78%

% Consumables and Service Revenue

22%

Though this would be a steady-scenario, InMode should also benefit from a growing market. One piece of research estimates a CAGR for the minimally invasive surgery market more broadly as 4.7% from 2021-2030. After that, I assumed the market would continue to grow at the average historical ~3% GDP growth-rate into the future.

The company has become relatively consistent in turning revenue into earnings with net margins around 40%.

Year

Revenue

Net Income

Net Margin

2018

$ 100,162.00

$ 22,371.00

22%

2019

$ 156,361.00

$ 61,145.00

39%

2020

$ 206,107.00

$ 75,025.00

36%

2021

$ 357,565.00

$ 165,074.00

46%

2022 (Nine Months)

$ 320,700.00

$ 123,812.00

39%

Taking all of this together, I was able to forecast earnings per share to produce a base case valuation. I discounted those projected earnings over 50 years with the average real stock market rate of return of 7%. The full details are presented in the table below.

Year

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

2051

2052

2053

2054

2055

2056

2057

2058

2059

2060

2061

2062

2063

2064

2065

2066

2067

2068

2069

2070

2071

2072

Installed Unit Base

17000

17799

18636

19511

20428

21389

22394

23446

24150

24874

25620

26389

27181

27996

28836

29701

30592

31510

32455

33429

34432

35465

36529

37625

38753

39916

41113

42347

43617

44926

46273

47662

49092

50564

52081

53644

55253

56911

58618

60376

62188

64053

65975

67954

69993

72093

74255

76483

78777

81141

Replacement Units

3400

3560

3727

3902

4086

4278

4479

4689

4830

4975

5124

5278

5436

5599

5767

5940

6118

6302

6491

6686

6886

7093

7306

7525

7751

7983

8223

8469

8723

8985

9255

9532

9818

10113

10416

10729

11051

11382

11724

12075

12438

12811

13195

13591

13999

14419

14851

15297

15755

16228

Capital Revenue ($M)

$ 340.00

$ 355.98

$ 372.71

$ 390.23

$ 408.57

$ 427.77

$ 447.88

$ 468.93

$ 483.00

$ 497.49

$ 512.41

$ 527.78

$ 543.62

$ 559.92

$ 576.72

$ 594.02

$ 611.84

$ 630.20

$ 649.11

$ 668.58

$ 688.64

$ 709.29

$ 730.57

$ 752.49

$ 775.07

$ 798.32

$ 822.27

$ 846.94

$ 872.34

$ 898.51

$ 925.47

$ 953.23

$ 981.83

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Consumables and Service Revenue ($M)

$ 94.03

$ 98.45

$ 103.07

$ 107.92

$ 112.99

$ 118.30

$ 123.86

$ 129.68

$ 133.57

$ 137.58

$ 141.71

$ 145.96

$ 150.34

$ 154.85

$ 159.49

$ 164.28

$ 169.20

$ 174.28

$ 179.51

$ 184.89

$ 190.44

$ 196.15

$ 202.04

$ 208.10

$ 214.34

$ 220.77

$ 227.40

$ 234.22

$ 241.24

$ 248.48

$ 255.94

$ 263.61

$ 271.52

$ 279.67

$ 288.06

$ 296.70

$ 305.60

$ 314.77

$ 324.21

$ 333.94

$ 343.96

$ 354.28

$ 364.90

$ 375.85

$ 387.13

$ 398.74

$ 410.70

$ 423.02

$ 435.71

$ 448.79

Total Revenue

$ 434.03

$ 454.43

$ 475.78

$ 498.15

$ 521.56

$ 546.07

$ 571.74

$ 598.61

$ 616.57

$ 635.06

$ 654.12

$ 673.74

$ 693.95

$ 714.77

$ 736.21

$ 758.30

$ 781.05

$ 804.48

$ 828.61

$ 853.47

$ 879.08

$ 905.45

$ 932.61

$ 960.59

$ 989.41

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Net Income (40% net margin)

$ 173.61

$ 181.77

$ 190.31

$ 199.26

$ 208.62

$ 218.43

$ 228.69

$ 239.44

$ 246.63

$ 254.03

$ 261.65

$ 269.50

$ 277.58

$ 285.91

$ 294.49

$ 303.32

$ 312.42

$ 321.79

$ 331.45

$ 341.39

$ 351.63

$ 362.18

$ 373.04

$ 384.24

$ 395.76

$ 407.64

$ 419.87

$ 432.46

$ 445.44

$ 458.80

$ 472.56

$ 486.74

$ 501.34

$ 516.38

$ 531.87

$ 547.83

$ 564.26

$ 581.19

$ 598.63

$ 616.59

$ 635.08

$ 654.14

$ 673.76

$ 693.97

$ 714.79

$ 736.24

$ 758.32

$ 781.07

$ 804.51

$ 828.64

EPS (83.08M shares outstanding)

$ 2.09

$ 2.19

$ 2.29

$ 2.40

$ 2.51

$ 2.63

$ 2.75

$ 2.88

$ 2.97

$ 3.06

$ 3.15

$ 3.24

$ 3.34

$ 3.44

$ 3.54

$ 3.65

$ 3.76

$ 3.87

$ 3.99

$ 4.11

$ 4.23

$ 4.36

$ 4.49

$ 4.62

$ 4.76

$ 4.91

$ 5.05

$ 5.21

$ 5.36

$ 5.52

$ 5.69

$ 5.86

$ 6.03

$ 6.22

$ 6.40

$ 6.59

$ 6.79

$ 7.00

$ 7.21

$ 7.42

$ 7.64

$ 7.87

$ 8.11

$ 8.35

$ 8.60

$ 8.86

$ 9.13

$ 9.40

$ 9.68

$ 9.97

Discounted EPS (7% discount rate)

$ 2.09

$ 2.04

$ 2.00

$ 1.96

$ 1.92

$ 1.87

$ 1.83

$ 1.79

$ 1.73

$ 1.66

$ 1.60

$ 1.54

$ 1.48

$ 1.43

$ 1.37

$ 1.32

$ 1.27

$ 1.23

$ 1.18

$ 1.14

$ 1.09

$ 1.05

$ 1.01

$ 0.98

$ 0.94

$ 0.90

$ 0.87

$ 0.84

$ 0.81

$ 0.78

$ 0.75

$ 0.72

$ 0.69

$ 0.67

$ 0.64

$ 0.62

$ 0.59

$ 0.57

$ 0.55

$ 0.53

$ 0.51

$ 0.49

$ 0.47

$ 0.46

$ 0.44

$ 0.42

$ 0.41

$ 0.39

$ 0.38

$ 0.36

Summing up, the discounted EPS gives a valuation of $52.40. With a stock price of around $37 at the time of writing, that is a margin of safety of 30%, which is not bad, but there are some big assumptions in this model. I would either want more confidence in these projections or a larger margin of safety to be able to recommend a buy.

On the downside, one of the assumptions I considered is the lifespan of the units. If instead of needing to be replaced every 5 years they only need to be replaced every 8 years, that changes capital revenue considerably from $340M to $212M–an almost 40% drop.

Number of surgically trained physicians

200000

InMode Market Share (broken stick model)

8.50%

Installed Unit Base

17000

Lifespan (years)

8

Replacement Units Sold per Year

2125

Average Price per Unit

$100,000

Capital Revenue

$212,500,000.00

Unit Revenue from Consumables and Service per year

$5,530.95

Consumables and Service Revenue

$94,026,150.00

Total Revenue

$306,526,150.00

% Capital Revenue

69%

% Consumables and Service Revenue

31%

Adjusting the projections from above gives a valuation of $37.01, much closer to the current stock price.

Year

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

2051

2052

2053

2054

2055

2056

2057

2058

2059

2060

2061

2062

2063

2064

2065

2066

2067

2068

2069

2070

2071

2072

Installed Unit Base

17000

17799

18636

19511

20428

21389

22394

23446

24150

24874

25620

26389

27181

27996

28836

29701

30592

31510

32455

33429

34432

35465

36529

37625

38753

39916

41113

42347

43617

44926

46273

47662

49092

50564

52081

53644

55253

56911

58618

60376

62188

64053

65975

67954

69993

72093

74255

76483

78777

81141

Replacement Units

2125

2225

2329

2439

2554

2674

2799

2931

3019

3109

3203

3299

3398

3500

3605

3713

3824

3939

4057

4179

4304

4433

4566

4703

4844

4989

5139

5293

5452

5616

5784

5958

6136

6321

6510

6705

6907

7114

7327

7547

7773

8007

8247

8494

8749

9012

9282

9560

9847

10143

Capital Revenue ($M)

$ 212.50

$ 222.49

$ 232.94

$ 243.89

$ 255.36

$ 267.36

$ 279.92

$ 293.08

$ 301.87

$ 310.93

$ 320.26

$ 329.86

$ 339.76

$ 349.95

$ 360.45

$ 371.26

$ 382.40

$ 393.87

$ 405.69

$ 417.86

$ 430.40

$ 443.31

$ 456.61

$ 470.31

$ 484.42

$ 498.95

$ 513.92

$ 529.33

$ 545.21

$ 561.57

$ 578.42

$ 595.77

$ 613.64

$ 632.05

$ 651.01

$ 670.55

$ 690.66

$ 711.38

$ 732.72

$ 754.70

$ 777.35

$ 800.67

$ 824.69

$ 849.43

$ 874.91

$ 901.16

$ 928.19

$ 956.04

$ 984.72

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Consumables and Service Revenue ($M)

$ 94.03

$ 98.45

$ 103.07

$ 107.92

$ 112.99

$ 118.30

$ 123.86

$ 129.68

$ 133.57

$ 137.58

$ 141.71

$ 145.96

$ 150.34

$ 154.85

$ 159.49

$ 164.28

$ 169.20

$ 174.28

$ 179.51

$ 184.89

$ 190.44

$ 196.15

$ 202.04

$ 208.10

$ 214.34

$ 220.77

$ 227.40

$ 234.22

$ 241.24

$ 248.48

$ 255.94

$ 263.61

$ 271.52

$ 279.67

$ 288.06

$ 296.70

$ 305.60

$ 314.77

$ 324.21

$ 333.94

$ 343.96

$ 354.28

$ 364.90

$ 375.85

$ 387.13

$ 398.74

$ 410.70

$ 423.02

$ 435.71

$ 448.79

Total Revenue

$ 306.53

$ 320.93

$ 336.02

$ 351.81

$ 368.34

$ 385.66

$ 403.78

$ 422.76

$ 435.44

$ 448.51

$ 461.96

$ 475.82

$ 490.10

$ 504.80

$ 519.94

$ 535.54

$ 551.61

$ 568.15

$ 585.20

$ 602.76

$ 620.84

$ 639.46

$ 658.65

$ 678.41

$ 698.76

$ 719.72

$ 741.31

$ 763.55

$ 786.46

$ 810.05

$ 834.35

$ 859.38

$ 885.17

$ 911.72

$ 939.07

$ 967.25

$ 996.26

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Net Income (40% net margin)

$ 122.61

$ 128.37

$ 134.41

$ 140.72

$ 147.34

$ 154.26

$ 161.51

$ 169.10

$ 174.18

$ 179.40

$ 184.78

$ 190.33

$ 196.04

$ 201.92

$ 207.98

$ 214.22

$ 220.64

$ 227.26

$ 234.08

$ 241.10

$ 248.34

$ 255.79

$ 263.46

$ 271.36

$ 279.50

$ 287.89

$ 296.53

$ 305.42

$ 314.58

$ 324.02

$ 333.74

$ 343.75

$ 354.07

$ 364.69

$ 375.63

$ 386.90

$ 398.51

$ 410.46

$ 422.77

$ 435.46

$ 448.52

$ 461.98

$ 475.84

$ 490.11

$ 504.81

$ 519.96

$ 535.56

$ 551.62

$ 568.17

$ 585.22

EPS (83.08M shares outstanding)

$ 1.48

$ 1.55

$ 1.62

$ 1.69

$ 1.77

$ 1.86

$ 1.94

$ 2.04

$ 2.10

$ 2.16

$ 2.22

$ 2.29

$ 2.36

$ 2.43

$ 2.50

$ 2.58

$ 2.66

$ 2.74

$ 2.82

$ 2.90

$ 2.99

$ 3.08

$ 3.17

$ 3.27

$ 3.36

$ 3.47

$ 3.57

$ 3.68

$ 3.79

$ 3.90

$ 4.02

$ 4.14

$ 4.26

$ 4.39

$ 4.52

$ 4.66

$ 4.80

$ 4.94

$ 5.09

$ 5.24

$ 5.40

$ 5.56

$ 5.73

$ 5.90

$ 6.08

$ 6.26

$ 6.45

$ 6.64

$ 6.84

$ 7.04

Discounted EPS (7% discount rate)

$ 1.48

$ 1.44

$ 1.41

$ 1.38

$ 1.35

$ 1.32

$ 1.30

$ 1.27

$ 1.22

$ 1.17

$ 1.13

$ 1.09

$ 1.05

$ 1.01

$ 0.97

$ 0.93

$ 0.90

$ 0.87

$ 0.83

$ 0.80

$ 0.77

$ 0.74

$ 0.72

$ 0.69

$ 0.66

$ 0.64

$ 0.61

$ 0.59

$ 0.57

$ 0.55

$ 0.53

$ 0.51

$ 0.49

$ 0.47

$ 0.45

$ 0.44

$ 0.42

$ 0.40

$ 0.39

$ 0.37

$ 0.36

$ 0.35

$ 0.33

$ 0.32

$ 0.31

$ 0.30

$ 0.29

$ 0.28

$ 0.27

$ 0.26

This is not the only downside consideration. Further competition, especially from new innovation, could eat at InMode's market share potential. I also recognize that the estimate of unit revenue from consumables and services could be off, which has large implications as consumables and services become a larger percentage of total revenue.

On the upside, however, one of the big assumptions is the market share. For instance, just going up one place on the broken stick model changes the market share from 8.5% to 11%.

Author created using the Broken Stick Rule from Wolfram Alpha

This increases the installed unit base from 17,000 to 22,000 and total revenue from $434M to $562M–a 30% increase.

Number of surgically trained physicians

200000

InMode Market Share (broken stick model)

11.00%

Installed Unit Base

22000

Lifespan (years)

5

Replacement Units Sold per Year

4400

Average Price per Unit

$100,000

Capital Revenue

$440,000,000.00

Unit Revenue from Consumables and Service per year

$5,530.95

Consumables and Service Revenue

$121,680,900.00

Total Revenue

$561,680,900.00

% Capital Revenue

78%

% Consumables and Service Revenue

22%

Adjusting the base case projections with this new assumption gives a valuation of $67.81.

Year

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

2051

2052

2053

2054

2055

2056

2057

2058

2059

2060

2061

2062

2063

2064

2065

2066

2067

2068

2069

2070

2071

2072

Installed Unit Base

22000

23034

24117

25250

26437

27679

28980

30342

31253

32190

33156

34151

35175

36230

37317

38437

39590

40778

42001

43261

44559

45896

47272

48691

50151

51656

53206

54802

56446

58139

59883

61680

63530

65436

67399

69421

71504

73649

75858

78134

80478

82892

85379

87941

90579

93296

96095

98978

101947

105006

Replacement Units

4400

4607

4823

5050

5287

5536

5796

6068

6251

6438

6631

6830

7035

7246

7463

7687

7918

8156

8400

8652

8912

9179

9454

9738

10030

10331

10641

10960

11289

11628

11977

12336

12706

13087

13480

13884

14301

14730

15172

15627

16096

16578

17076

17588

18116

18659

19219

19796

20389

21001

Capital Revenue ($M)

$ 440.00

$ 460.68

$ 482.33

$ 505.00

$ 528.74

$ 553.59

$ 579.61

$ 606.85

$ 625.05

$ 643.80

$ 663.12

$ 683.01

$ 703.50

$ 724.61

$ 746.35

$ 768.74

$ 791.80

$ 815.55

$ 840.02

$ 865.22

$ 891.18

$ 917.91

$ 945.45

$ 973.81

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Consumables and Service Revenue ($M)

$ 121.68

$ 127.40

$ 133.39

$ 139.66

$ 146.22

$ 153.09

$ 160.29

$ 167.82

$ 172.86

$ 178.04

$ 183.38

$ 188.89

$ 194.55

$ 200.39

$ 206.40

$ 212.59

$ 218.97

$ 225.54

$ 232.31

$ 239.27

$ 246.45

$ 253.85

$ 261.46

$ 269.31

$ 277.38

$ 285.71

$ 294.28

$ 303.11

$ 312.20

$ 321.56

$ 331.21

$ 341.15

$ 351.38

$ 361.92

$ 372.78

$ 383.96

$ 395.48

$ 407.35

$ 419.57

$ 432.16

$ 445.12

$ 458.47

$ 472.23

$ 486.40

$ 500.99

$ 516.02

$ 531.50

$ 547.44

$ 563.87

$ 580.78

Total Revenue

$ 561.68

$ 588.08

$ 615.72

$ 644.66

$ 674.96

$ 706.68

$ 739.89

$ 774.67

$ 797.91

$ 821.85

$ 846.50

$ 871.90

$ 898.05

$ 925.00

$ 952.75

$ 981.33

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Net Income (40% net margin)

$ 224.67

$ 235.23

$ 246.29

$ 257.86

$ 269.98

$ 282.67

$ 295.96

$ 309.87

$ 319.16

$ 328.74

$ 338.60

$ 348.76

$ 359.22

$ 370.00

$ 381.10

$ 392.53

$ 404.31

$ 416.44

$ 428.93

$ 441.80

$ 455.05

$ 468.70

$ 482.76

$ 497.25

$ 512.16

$ 527.53

$ 543.36

$ 559.66

$ 576.45

$ 593.74

$ 611.55

$ 629.90

$ 648.79

$ 668.26

$ 688.31

$ 708.96

$ 730.22

$ 752.13

$ 774.69

$ 797.94

$ 821.87

$ 846.53

$ 871.93

$ 898.08

$ 925.03

$ 952.78

$ 981.36

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EPS (83.08M shares outstanding)

$ 2.70

$ 2.83

$ 2.96

$ 3.10

$ 3.25

$ 3.40

$ 3.56

$ 3.73

$ 3.84

$ 3.96

$ 4.08

$ 4.20

$ 4.32

$ 4.45

$ 4.59

$ 4.72

$ 4.87

$ 5.01

$ 5.16

$ 5.32

$ 5.48

$ 5.64

$ 5.81

$ 5.99

$ 6.16

$ 6.35

$ 6.54

$ 6.74

$ 6.94

$ 7.15

$ 7.36

$ 7.58

$ 7.81

$ 8.04

$ 8.28

$ 8.53

$ 8.79

$ 9.05

$ 9.32

$ 9.60

$ 9.89

$ 10.19

$ 10.50

$ 10.81

$ 11.13

$ 11.47

$ 11.81

$ 12.17

$ 12.53

$ 12.91

Discounted EPS (7% discount rate)

$ 2.70

$ 2.65

$ 2.59

$ 2.53

$ 2.48

$ 2.43

$ 2.37

$ 2.32

$ 2.24

$ 2.15

$ 2.07

$ 1.99

$ 1.92

$ 1.85

$ 1.78

$ 1.71

$ 1.65

$ 1.59

$ 1.53

$ 1.47

$ 1.42

$ 1.36

$ 1.31

$ 1.26

$ 1.22

$ 1.17

$ 1.13

$ 1.08

$ 1.04

$ 1.00

$ 0.97

$ 0.93

$ 0.90

$ 0.86

$ 0.83

$ 0.80

$ 0.77

$ 0.74

$ 0.71

$ 0.69

$ 0.66

$ 0.64

$ 0.61

$ 0.59

$ 0.57

$ 0.55

$ 0.53

$ 0.51

$ 0.49

$ 0.47

These projections put the company in a fairly good position and indicate that on the low side InMode is near fair value, but on the high side has a lot of potential. Showing these various cases, however, reveals how sensitive the projections are to key assumptions and bolsters my view that a larger margin of safety would be desirable.

Several financial metrics help build a positive impression of the company. Insider holdings remain high at 16.75%. The company also has very little debt. The non-current debt is $12,754,000 while the shareholder equity is $508,303,000, which results in a very low long-term debt-to-equity ratio of only 0.025. Indeed, InMode could easily pay its total liabilities of $70,681,000 with its $77,048,000 in cash, putting it in a very strong financial position.

Additionally, InMode has opportunities to further innovate and to acquire business in adjacent spaces. As CEO Moshe Mizrahy stated: "In addition to our active pipeline of new technology, we're also exploring potential acquisition that could complement our presence in the wellness market." These options could provide more growth to come on top of the steady-state cases I presented above.

InMode's product portfolio covers the gap between traditional plastic surgery and non-invasive laser procedures, which has proven to be a lucrative market opportunity. InMode has made significant growth in revenue and increased its unit installed base over the past few years. Eventually, though, it will totally fill its current niche and capital revenue will begin to rely on broader market growth and unit replacement rather than growth in device adoption. Based on some key assumptions, I detailed three different cases that should provide investors some confidence that InMode is at least near fair value. There is too much uncertainty in these projections and not enough margin of safety to be able to recommend a buy from my point of view. However, the downside appears to be much smaller than the upside, so I recommend a "Hold" rating. Investors who feel more optimistic about an upside case based on their own research may be interested in buying. Through market growth, innovation, and acquisitions, there are plenty of ways for this company to succeed.

This article was written by

Analyst's Disclosure: I/we have a beneficial long position in the shares of INMD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.