What happened
Shares of medical device company InMode (INMD 0.38%) gained 59% in the second half of 2022, according to data provided by S&P Global Market Intelligence. This market outperformance came after the stock dropped 70% in the first few months of the year, which is why investors want to know if the worst is now over.
I'd usually like to frame this by explaining why InMode stock crashed in the first place. However, the main character of that narrative remains a mystery to me, as I'll explain.
So what
Typically, I can find a problem for a company or at least something the market is concerned about. Over extended periods of time, these concerns are usually manifested around earnings reports. However, as the chart shows, InMode stock did most of its falling on days when it didn't have financial news to report.
Furthermore, according to data compiled by TipRanks, the analyst community has only had buy ratings on InMode stock over the past year. So the problem hasn't really been Wall Street, either.
Moreover, InMode has consistently exceeded management's guidance and even raised guidance over time. Really, the only fault I can find is that the company's gross-profit margin has slightly pulled back, even though it's still quite high, at about 84%. However, even with a small gross-margin decline, it's made up for it with the improvement of its operating margin.
INMD Gross Profit Margin data by YCharts
Therefore, the only conclusion I can really draw is that the market is worried about InMode in a slowing economy. The company's products are frequently used in minimally invasive cosmetic procedures, which logically would be in less demand if discretionary income falls for consumers because of the economy.
I believe InMode's drop is a head-scratcher. Therefore, its gain in the back half of 2022 was likely a sign the worst is indeed over, and it's moved back to where it should have been all along.
Now what
The market could be concerned about slowing growth, but that hasn't manifested in InMode's financial results so far. Through the first three quarters of 2022, it's generated revenue of nearly $321 million, up about 30% from the comparable period of 2021.
However, fourth-quarter revenue is expected to be slower than usual for InMode. Management is guiding for full-year revenue of $445 million to $450 million, implying about $124 million to $129 million in Q4. That compares to $110.5 million in the same quarter of 2021, which means Q4 is looking for about 12% to 17% year-over-year growth.
That's still a decent growth rate for InMode. And, in my opinion, it does look like the worst is far in the rearview mirror for InMode shareholders.
Whether InMode beats the market this year, however, will likely have a lot to do with management's guidance for 2023.
