InMode Stock: An Inverse Bubble Caused By Short-Term Trouble

Company Overview - InMode is an Israeli company that sells medical devices and consumables, focusing on radiofrequency and intense pulsed light technologies for aesthetic procedures [2] - The company's products are high-quality and expensive, often financed by customers, making interest rates a significant factor in revenue generation [2] Stock Performance - InMode's stock has seen a significant decline from a peak of $99 in 2021 to under $16 per share [1] - The company had a large cash position of $729.2 million as of June 30, 2024, with no debt, but failed to execute share buybacks as expected, leading to investor disappointment [3][4] Recent Developments - In October 2023, InMode lowered its full-year guidance, resulting in a 20% drop in stock price, attributed to high interest rates negatively impacting demand [4] - The company has recently initiated share buybacks, repurchasing 8.37 million shares, which is 10% of its outstanding shares, at an average price of $17.97 [11] Financial Outlook - Analysts expect InMode to report an EPS of $1.88 for Fiscal 2024, resulting in a forward P/E of 8.35x, indicating a potential undervaluation [8] - Future EPS growth is projected at 14.1% in 2025 and 8.9% in 2026, with a forward P/E of 6.7x for 2026 [8] Market Conditions - High interest rates have adversely affected InMode's sales, as many customers are delaying purchases until rates decrease [6] - The market anticipates a 68% chance of a 25 basis points interest rate cut by September 2025, which could positively impact InMode's sales [6][7] Valuation Analysis - Current market expectations imply a decline in free cash flow per share of 4.412% annually for the next decade, which is viewed as overly pessimistic for a leading player in the aesthetics medical device market [10][12] - The stock's valuation suggests a forward earnings yield of nearly 15% for 2026, indicating potential for significant upside [12]