What happened
Shares of medical device company InMode (INMD -1.55%) fell 32% in April, according to data provided by S&P Global Market Intelligence. On April 11, the company gave encouraging preliminary financial results for the first quarter of 2022. But the stock ultimately underperformed the market average by a wide margin and is currently down roughly 75% from its all-time high in 2021.
Oddly enough, prominent analysts applauded the Q1 results from InMode but lowered their expectations for the stock nevertheless.
April returns for InMode stock and the S&P 500. ^SPX data by YCharts
So what
InMode's management gave preliminary Q1 results showing revenue of $85.5 million on the high end. And it expected to report non-GAAP (generally accepted accounting principles) earnings per share (EPS) of $0.39 at best. In reality, it did better than expected by reporting revenue of $85.9 million and non-GAAP EPS of $0.40 on May 2. These were year-over-year increases of 31% and 18%, respectively.
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According to The Fly, both Baird analyst Jeff Johnson and Canaccord analyst Kyle Ross lowered their price targets for InMode stock after the official Q1 report. However, Johnson said the balance between risk and reward was now "favorable" and cited InMode's "exceptional commercial execution." In other words, both analysts appeared to applaud the company's financial results despite counterintuitively lowering their price targets from $82 per share and $72 per share to $57 per share and $50 per share.
This seems to be a trend on the stock market right now. Regardless of financial results, investors appear to be lowering their expectations on future returns. And this seems to be the primary reason InMode stock was down in April.
Now what
Slowing revenue growth is one of the few faults one could find with InMode right now. Management is guiding for revenue of $415 million to $425 million in 2022, up 16% to 19% from 2021. For perspective, top-line growth was superior in 2021 at 73%.
Additionally, I believe it's fair for investors to question if hitting this guidance is realistic. After all, consumer inflation is the highest it's been in about 40 years and it seems consumers are starting to feel the impact. Cosmetic procedures with InMode's devices are elective and people could choose to wait if their financial situations get challenged.
That said, the data suggests this isn't happening yet. InMode makes money from selling devices but also from selling consumable products when procedures are performed. As management pointed out on its conference call, consumables revenue jumped 79% in Q1 to a record $14 million, demonstrating greater device utilization than ever.
With an already installed base of over 6,000 customers and over 12,000 devices, InMode is in a good position for long-term adoption, even if things take a step back with near-term economic uncertainty. Therefore, down 75% from its high, now may be an opportune moment to research InMode stock further.
