How I hunt for Multi-baggers (Guided) $INMD
Screener
One of my favourite ways to find a high performing company is by using a Stock Screener. (Finviz)
These are my settings & the reasons for it :
Market Cap < $10Bil
Small companies tend to have more room to run
Insider Ownership > 10%
Founder-led companies tend to outperform
IPO Date < 3 yrs
Most companies show massive share price appreciation within 3 years of IPO
Current Ratio > 1
To filter out companies with healthy balance sheets
Sales Growth QoQ > 0%
I usually start off with >25% , and work my way down to > 0% so I don’t accidentally miss out on any great companies.
Gross Margin > 40%
Leaders in their industries tend to have high GMs
Higher Topline means there’s higher Bottom Line potential
Speed “Eyeballing”
Screener Results are populated. Now, I will quickly eyeball the financial statements of every company as sometimes the screener may populate 100+ stocks. To do this, google the ‘ticker symbol’ + ‘yahoo finance’
e.g. ‘INMD yahoo finance’
For this speed eyeballing, I look out for mainly
Consistently Increasing Sales growth (At least 25% YoY)
Consistent / Expanding Gross Margins
Improving Operating Income & Operating Cash Flow (Bonus if positive)
Is Operating Cash Flow consistently close to Operating Income?
This is important as a company may report Operating Income on their books but have not received the cash, implying that the company is cash-strapped.
If Operating Income is negative,
Does company have enough cash to sustain for 3 years?
Is Operating Income becoming less negative?
Once I’ve eyeballed down to about < 5 companies , let’s find out what these companies does.
Company Website
What better way to find out about a company than their website?
Sometimes, reading the words doesn’t give us a clear picture of what the company does. In such cases, I search for videos either on their website or on YouTube.
Overview in my own words:
InMode manufactures, and sells RF-based, minimally-invasive surgical equipment across several categories of surgical specialty such as :
Plastic surgery, Gynecology, Dermatology, Dental, Ophthalmologists, ENT’s and Urology.
Their comprehensive line of equipment that enables them to capitalize on a multi-billion dollar market opportunity.
At this point, a few questions come to mind
Is InMode technology the gold standard or at least preferred?
How large is their market?
I’ll first address 2. as it is easier to find
Market Opportunity
This information can usually be found in the S-1 or 10-K
Note that for foreign companies listed in the U.S., the equivalent would be F-1 & 20-F respectively.
From F-1 : “We believe that there are approximately 300,000 potential non-traditional physician customers in the United States and Canada”
From 20-F (Dec 2020) : “As of December 31, 2020, we had a global installed base of approximately 7,250 product platforms”
Estimating that each physician customer will only purchase 1 product, InMode still has a 41x growth runway ahead. Bear in mind that this is only U.S. & Canada while InMode intends to grow internationally meaning that 41x is extremely conservative.
Nevertheless, it’s safe to say that their growth runway is pretty long.
Product
How good is InMode’s products? What’s their Unique Selling Point (USP)?
From their 20-F , I found some stuff :
Our platforms have a small footprint and are lightweight compared to our competitors’ systems, which are typically larger and heavier.
RF energy is different from optical energy because it is not absorbed by the epidermis and is able to be targeted to penetrate deep into the tissue.
Minimally-invasive. Requires small to no incisions, which reduces the drawbacks and risks typically associated with surgical procedures such as significant pain, local or widespread scarring, infection, perforation and hemorrhage.
Does not require general anesthesia, which can decrease patient downtime, discomfort and other potential complications and typically reduces cost.
Minimally-invasive procedures with similar efficacy to surgical procedures that have the ability to expand the addressable patient population for aesthetics procedures.
Effective and long-lasting aesthetic solutions, many of which are supported by compelling clinical data, including 60 peer-reviewed publications.
Differentiated, RF energy-based technology simultaneously kills fat and tightens skin, overcoming the many shortcomings of traditional surgical, minimally and non-invasive aesthetic procedures.
Innovative dual wavelength laser technology that allows for permanent hair reduction on a wider range of skin types and hair textures than other aesthetic solutions currently on the market, reducing the number of treatments required.
Typically less expensive than other aesthetic solutions on the market that provide comparable results as a result of less required physician time and training required.
Competition
InMode faces intense competition. They are subject to rapid change and highly sensitive to the introduction of new products or other market activities of industry participants.
We compete against products offered by public companies, including Allergan plc, Cutera, Inc., Apyx Medical Corporation, Venus Concept Inc., Sisram Medical Ltd. and Viveve Medical, Inc., as well as by private companies, such as Cynosure LLC (formerly Cynosure Inc.), Lumenis Ltd., BTL Aesthetics, Inc. and Syneron Medical Ltd and Candela Inc.
There are many companies, both public and private, that are developing innovative devices that use laser and other energy-based and alternative technologies. Many of these competitors have significantly greater financial and human resources than we do and have established reputations, greater brand name recognition, broader product lines, and larger customer bases, as well as worldwide distribution channels that are more effective than ours.
So the question remains, is InMode’s product the best?
Well, not gonna lie but it’s a little hard to find out as I’m not an industry expert. One way to get around this is to look at the Revenue Growth. The idea is that if the machines are selling well, it implies that there is demand and that InMode is doing something right.
53mil -> 100mil (~100% YoY)
100mil -> 156mil (~56% YoY)
156mil -> 206mil (~32% YoY) <— Excusable as this is COVID period
206mil -> 288mil (~40% halfway through 2021) <— Looks like revenue is re-accelerating
Looking at the strong revenue growth, I am comfortable with ignoring the competitors.
Reviews
To build a little bit more conviction, we can also look at what Customers or Experts are saying about InMode.
Simply search “InMode reviews” on Google or YouTube.
Management
InMode seems promising thus far, but we have 1 last important thing to check.
For this, I usually look for 3 things
How much skin-in-the-game does Management have?
As of 10 Feb 2021,
Moshe Mizrahy, CEO : 4,847,345 shares worth $557mil today.
Dr. Michael Kreindel, CTO : 4,147,443 shares worth $477mil today.
That’s significant skin-in-the-game considering their salary of $216k & $217k respectively.
This can be found in the 20-F annual report. For U.S. companies, you can either look at their 10-K annual report or DEF14A.
What is their track record?
Well, InMode’s Management has been executing really well throughout their years. One look at their Revenue Growth and you could get a sense of it. For further information, check out their Press Releases to see what they have achieved throughout the years. Alternatively, we can use sites like LinkedIn to view their history if they have an account.
Watch their Interviews
This can be quite subjective. I usually look for things like passion, humility, and clarity in tone. Does he/she talk about their product and vision Or does he blabbers on and on about financials?
This is kind of an art and you have to decide for yourself whether you trust this guy with your money or not.
Summary
Alright! We have come to the end of our Due Diligence.
So far we have covered 3 Overarching Topics
Financials
Product
Management
Everything seems to click and now, I’m ready to invest!
One last thing, I would also look at the due diligence done by others on SeekingAlpha, Twitter, or any investment sites to ensure I am as informed as possible of any risks or blind spots.
Note: There is one last thing which I will not cover in this post, which is Valuation. Personally I use my customized Discounted Cash Flow (DCF) method which has consistently helped me to get in at great entry prices. I have posted some videos on how I do it on my Instagram page.