InMode Ltd. is a $3.6B company which offers non- or minimally invasive aesthetic medical products in the US and internationally. Basically, if there’s something that you don’t like about your skin, but you don’t feel like going under the scalpel either, InMode can probably help you. The company went public in 2019 at a split-adjusted price of $7 per share.
For some reason, INMD stock exceeded $99 in November, 2021. EPS came in below $2 that year, meaning investors were willing to pay over 50 years’ worth of earnings for the shares. Euphoria doesn’t last long, though, and by mid-2022, InMode stock was down ~80% to the low-$20s. Currently at $44, its valuation makes a lot more sense as the company is expected to earn roughly $2.70 a share in 2023.
On the other hand, revenue growth is decelerating and there’s margins erosion due to inflation. The company’s products are used in procedures which may be characterized as discretionary. In a recession, people will simply not be spending as much money on aesthetic medical procedures as they do in a healthy economy. So is InMode stock worth buying at a price-to-earnings ratio of 16? Elliott Wave analysis gives us a pause.
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The 4-hour chart of INMD reveals that the structure of the crash from $99.27 to $20.60 is impulsive. The pattern is labeled 1-2-3-4-5 in wave A, where the five sub-waves of wave 3 are also visible. According to the theory, a three-wave correction follows every impulse before the trend can resume. Here, wave B looks like a complete (a)-(b)-(c) zigzag with an a-b-c-d-e triangle in wave (b).
If this count is correct, it is time for another notable drop in wave C, whose targets lie below the $20 mark. We like that the company is profitable, growing and debt-free. Unfortunately, that’s just not enough heading into a recession in 2024. We’re afraid that InMode stock looks attractive on a P/E basis just because the E stands for peak earnings. Would $44 still look cheap in an actual crisis? We doubt it, and Elliott Wave analysis supports our skepticism.
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