InMode: More Headwinds Than Expected, Wait For A Floor To Materialize (Rating Downgrade)

seekingalpha04-27

The market remains pessimistic about INMD's prospects, as observed in the stock's decline by -21.6% over the past three months, well underperforming the wider market at +4.7%.Part of the headwinds are...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nInMode: More Headwinds Than Expected, Wait For A Floor To Materialize (Rating Downgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-27 21:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4686967-inmode-more-headwinds-than-expected-wait-for-a-floor-to-materialize><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The market remains pessimistic about INMD's prospects, as observed in the stock's decline by -21.6% over the past three months, well underperforming the wider market at +4.7%.Part of the headwinds are...</p>\n\n<a href=\"https://seekingalpha.com/article/4686967-inmode-more-headwinds-than-expected-wait-for-a-floor-to-materialize\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4585","symbol_name":"ETF&股票定投概念","start_time":0,"source_url":"https://seekingalpha.com/article/4686967-inmode-more-headwinds-than-expected-wait-for-a-floor-to-materialize","article_id":"2430671701","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/173623321/image_173623321.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2430671701","pubTimestamp":1714222800,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"The market remains pessimistic about INMD's prospects, as observed in the stock's decline by -21.6% over the past three months, well underperforming the wider market at +4.7%.Part of the headwinds are","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4585":"ETF&股票定投概念","BK4588":"碎股","INMD":"InMode Ltd.","BK4082":"医疗保健设备","CUTR":"古特拉"},"translate_title":"InMode：逆风比预期更大，等待下限实现（评级下调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CUTR":1,"INMD":1},"content_text":"The market remains pessimistic about INMD's prospects, as observed in the stock's decline by -21.6% over the past three months, well underperforming the wider market at +4.7%.Part of the headwinds are attributed to the management's lowered FY2024 revenue guidance, building upon the FY2023 slowdown, as borrowing costs are still elevated for prospective buyers.Then again, we believe that consumer demand for skin-tightening devices and body contouring products may remain robust, thanks to the popularity of GLP-1 obesity therapies.The same has been observed in INMD's growing consumable sales, with it likely to drive intermediate-term growth as equipment sales temporarily stall.However, with the stock recording elevated short interest and the market experiencing an uncertain pullback, it may be more prudent to wait for a floor to materialize first.   pictafolioWe previously covered InMode (NASDAQ:NASDAQ:INMD) in January 2024, discussing why we maintained our Buy rating despite the massive plunge over the past three months. Much of our optimism were attributed to the company's robust consumable sales with the downgraded FY2023 guidance only attributed to the elevated interest rate environment, with an upward re-rating and sales recovery only being a matter of time. By now, it appears that the market remains pessimistic about INMD's prospects, as observed in the stock's decline by -21.6% over the past three months, well underperforming the wider market at +4.7%. As a result of the ongoing geopolitical events in Israel, the current market-wide correction, the management's lowered FY2024 sales guidance, and the prolonged inflationary pressure, we believe that the stock may continue to retrace to retest its previous support levels of $14s. As a result of the potential volatility, we are prudently downgrading INMD to a Hold for now. The INMD Investment Thesis Remains Decent As Growth Normalizes For now, with INMD set to report its next quarter earnings on May 02, 2024, the management has delivered an underwhelming FQ1'24 revenue guidance of $80.05M (-36.8% QoQ/ -24.5% YoY) while lowering the FY2024 midpoint revenue guidance to $490M (-0.4% YoY). This is down from the original FY2024 midpoint guidance of $500M (+1.6% YoY) and the original consensus estimates of $519.84M (+5.6% YoY). It is apparent from these numbers that INMD expects a prolonged sale headwind, attributed to the \"macro headwinds and a technical issue related to revenue recognition.\"   INMD's Revenue Breakdown   Seeking AlphaThese issues also built upon INMD's FY2023 revenue miss, attributed to the \"seasonal slowdown and higher interest rates for prospective equipment buyers,\" reversing the consecutive earning beats thus far. The same has been observed in the decelerating growth in the Capital Equipment revenues to $412.08M (+4.5% YoY) in FY2023, compared to those reported at +23.4% YoY in FY2022, +72.1% YoY in FY2021, and +30.3% YoY in FY2020. It is apparent from these numbers, that the sale of expensive equipment such as those from INMD remains painfully exposed to external macro factors, especially due to the higher borrowing costs at the moment. The same has been reported by its direct peer, Cutera (CUTR), with the impacted FY2023 sales of $212.37M (-15.9% YoY) implying an industry wide demand headwind. On the other hand, with most of INMD's growth already pulled forward during the hyper-pandemic period, the sales normalization is to be expected indeed, since the high double-digit growths are only attributed to the pent-up demand after the COVID-19 lockdowns. At the same time, the consumer aesthetic demand remains durable, as observed in the growing consumable/ service revenues of $79.95M (+33.1% YoY) in FY2023, compared to those reported at +56.7% in FY2022, +85.9% in FY2021, and +56.4% in FY2020. With the company already reporting a global installed base of approximately 22.9K platforms by December 2023 (+34.7% YoY/ +367.3% from FY2019 levels of 4.9K), we believe that its near-term prospects remain decent. If anything, the market already expects the popularity of GLP-1 obesity treatments to potentially boost the demand for skin-tightening devices and body contouring products, INMD included, with consumables/ service revenues likely to continue growing as equipment sales temporarily stall.  As a result, while INMD's lowered FQ1'24 forecast has triggered more pessimism, we believe that things are likely to lift once borrowing costs moderates, with investors best paying attention to its consumable sales in the upcoming earnings call. The Consensus Forward Estimates Tikr TerminalFor now, as the management lowers their FY2024 revenue guidance, the consensus have also subsequently downgraded their forward estimates, with INMD expected to record a decelerating top/ bottom line growth at a CAGR of +5.3%/ +3.2% through FY2026. This is compared to the previous estimates of +16%/ +12.5% and the historical expansion at +54.8%/ +117.4% between FY2016 and FY2023, respectively. Despite so, INMD is expected to remain profitable on a Free Cash Flow basis, thanks to the management's strong focus on ~85% gross margins and utilization of third-party contract manufacturers. At the same time, based on the growing cash on balance sheet at $741.59M (+35.4% YoY) and zero debts, we believe that the company remains well capitalized to weather the intermediate-term uncertainties. INMD Valuations Seeking AlphaEven so, the deceleration in INMD growth prospects have directly contributed to its discounted FWD EV/ Sales valuations of 1.51x and FWD P/E valuations to 7.13x at the time of writing, down drastically from our previous article levels of 2.41x/ 8.99x, its 1Y mean of 3.28x/ 10.95x, and the 5Y mean of 6.25x/ 21.28x, respectively. The same pessimism has also been observed in CUTR at FWD EV/ Sales of 2x compared to the 5Y mean of 2.51x, with the industry experiencing the expected normalization process after the hyper-pandemic boom, worsened by the temporal effects of the elevated interest rate environment. So, Is INMD Stock A Buy, Sell, or Hold?  INMD 4Y Stock Price Trading ViewHowever, combined with the ongoing geopolitical events in Israel and the current market-wide correction, we can understand why INMD continues to chart lower highs and lower lows after the July 2023 top. With the March 2024 CPI still signaling rising inflationary pressure, it appears that the Fed's path to a 2% inflation target may be prolonged, with it affecting the borrowing costs/ financing for prospective equipment buyers and consequently, sales. For now, most of the market has also priced in zero rate cuts through July 2024, with it only expected to occur by the September 2024 FOMC meeting, against the original projections of Q2'24. While the Fed may have priced in a normalized economy by Q4'26, it appears that the path may be prolonged, triggering more uncertainties for INMD over the next two years. In addition, we may see more volatility in the near-term, with INMD already recording elevated short interest of 7.04% at the time of writing as the company faces more lawsuits and allegations on supposed sales/ licensing misrepresentation over the past few years. It appears by now that we have been wrong in rating INMD as a Buy in our last three articles indeed, with the stock also losing -57% of its value since July 2023, well underperforming the wider market at +15.5%.  As a result of the potential capital losses, we believe that it may be more prudent to downgrade INMD to a Hold (Neutral) for now, while waiting for the floor to materialize and more clarity regarding the allegations.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2430671701"}