When it comes to monster growth stocks in the making, it's rare to find a company that has pretty much every property an investor would want. On that note, InMode (INMD -0.06%) develops minimally invasive medical-aesthetics devices that can provide similar effects to laser skin treatments and even plastic surgery. The company's profitable, rich in cash, rapidly growing, and nearly debt-free -- and that's not all.
Its aesthetics hardware might be able to steal market share from multiple competing techniques, as it's far easier for customers to commit to a less-invasive beauty treatment performed under local anesthesia than it is to commit to undergoing highly invasive plastic surgery. Plus, the stock's valuation is currently quite reasonable, which might leave investors wondering what the catch is.
Has the market already discovered InMode and priced in all of its future prospects, or is there still upside left with the stock?
Image source: Getty Images.
Short-term price movements don't mean much
In my view, it's highly unlikely that the market has priced in this company's growth potential, as its research and development staff are constantly making new aesthetics devices using the same radiofrequency (RF) technology featured everywhere else in its product lineup.
In the second half of 2021 alone, InMode launched two new pieces of hardware, and there's likely more to come in the future. Multiple product launches per year are its norm. In 2020, it rolled out three new hardware platforms, each of which is capable of a different set of aesthetic procedures.
So why would someone think that it might be too late to buy InMode stock?
In short, because the last three months have been absolutely punishing for shareholders, who have faced a decline of around 49%. What's more, that decline hasn't been a result of worse-than-expected earnings or any detrimental change to the company's financial performance whatsoever.
Over the last 12 months, its quarterly net income has grown by 67.8% and quarterly free cash flow has risen by an impressive 104.1%. In fact, if the earnings sneak peek released on January 12 holds true, InMode will actually beat its own revenue guidance for 2021. Management initially expected to make as much as $347 million for the year but now predicts revenue as high as $357 million.
And per its business model, each new device sold to aesthetics clinics implies additional recurring revenue down the line from maintenance and sales of consumables. Strong adoption of its products today, therefore, implies a trickle of income, even in the absence of further market penetration, which, in turn, builds on the company's long-term potential.
Buckle up for the next leg of the journey
Another reason why it isn't too late to buy InMode stock is that its valuation isn't half bad, even after its impressive run-up in 2021.
The medical equipment and supply industry has an average price-to-earnings ratio of 52, but InMode's trailing-12-month multiple is only 25. Its price-to-sales (P/S) ratio isn't as favorable, with the stock's 12 towering over the industry's average of 5. But that shouldn't scare off investors, as the high P/S multiple is but one flaw in an otherwise pristine opportunity.
The opportunity probably won't stick around forever. Among four analysts, the average price target for InMode's shares is $95 this year, which is more than double where it is right now.
Still, given the way the market has been going in the last few weeks, it'll take a bit of conviction to ride out the dips that might keep coming. As difficult as the stock's recent decline has been, it's likely a result of external economic or market factors, like the looming interest-rate hikes.
In sum, shareholders should keep their eyes on the horizon and take heart in the company's excellent products, strong business model, and consummate financial performance since its debut on the market. For new investors, it's probably a good time to consider opening a position.
