What happened
Shares of medical company InMode (INMD -0.06%) were up 197.3% in 2021, according to data provided by S&P Global Market Intelligence. This company went public in 2019, and its initial public offering (IPO) was priced at just $14 per share. In its still-short public history, it's nearly quadrupled from that IPO price largely because its underlying business has grown by leaps and bounds. And a lot of that growth came in 2021.
So what
InMode makes medical devices that emit radio frequencies, a minimally and (in some cases) non-invasive way to perform types of plastic surgery and skin care, among other things. Let's frame 2021's narrative by first looking at the storyline in 2020. In 2020, InMode generated record revenue of $206 million, which was up 32% from 2019 despite challenges from the COVID-19 pandemic.
Image source: Getty Images.
InMode has continued to perform in 2021 like it did in 2020. Through the first three quarters of the year, it generated revenue of $247 million, up 89% from the same three quarters of 2020. In short, the medical community is increasingly adopting InMode's devices for certain procedures.
There's two categories for InMode's revenue: One is one-time sales of the medical devices themselves; the other is categorized as consumables and services -- ongoing revenue opportunities. In the third quarter of 2021, consumables-and-services revenue was 10% of total revenue. On one hand, this demonstrates that medical-device sales are driving the majority of revenues right now, suggesting InMode's sales team will need to keep executing going forward. On the other hand, having a growing stream of recurring revenue is great for any business and something investors certainly welcome.
Investors are also likely to appreciate InMode's profit margins. According to generally accepted accounting principles (GAAP), the company had a net profit margin of 36% in 2020, down from 39% in 2019 but still an elite profitability profile. However, these profit margins have jumped substantially in the first three quarters of 2021, coming in at 45%.
Now what
As we've seen, business for InMode has been booming. But here are a couple of things that investors can be watching in 2022.
First, InMode is spending a lot on sales and marketing right now. Through the first three quarters of 2021, it spent 34% of revenue on this line item. There's nothing wrong with this considering how quickly it's growing its top line. But if growth starts to slow, watch to see how management adjusts spending.
For what it's worth, InMode's management expects to report revenue of roughly $98 million in the upcoming fourth quarter. That would be about 30% year-over-year revenue growth. Clearly, its growth rate is cooling off some.
Second, InMode is sitting on a lot of cash thanks to its outsized profit margins. As of the third quarter, it had $334 million in cash, cash equivalents, and marketable securities. Management can boost shareholder returns by allocating capital smartly. So far in 2021, it's only spent 2.8% of revenue on research and development (R&D). So this could be a good area in which to spend more money. But whether it's R&D or something else, it would be nice to hear more from management in 2022 about how it plans to use this money to its advantage going forward.
