InMode Ltd (NASDAQ:INMD) Embodies Peter Lynch's GARP Philosophy with Strong Growth and Undervalued Metrics

The investment philosophy supported by Peter Lynch highlights finding companies with solid growth potential trading at sensible valuations, a method frequently grouped as Growth at a Reasonable Price (GARP). Lynch’s structure centers on lasting business growth, good financial condition, and appealing valuation measures, steering clear of overhyped or highly leveraged firms. This method puts fundamental strength ahead of short-term market changes, rendering it especially applicable for long-term investors looking for lasting returns.

One company presently fitting these standards is InMode Ltd (NASDAQ:INMD), a developer of minimally-invasive aesthetic medical devices. The firm focuses on radio frequency-based technologies for body contouring, medical aesthetics, and women’s health, a market with consistent demand and room for new ideas.

InMode fits well with a number of central ideas of the Lynch method:

• Earnings Growth and Sustainability: Lynch preferred companies with strong but controlled earnings growth, usually between 15% and 30% per year. InMode’s 5-year EPS growth of about 23% sits directly within this band, showing a capacity to grow profitably without overheating. This measure is important in Lynch’s structure as it points to operational performance and market acceptance, both signs of a well-placed business.

• Valuation Relative to Growth: The PEG ratio, which connects the P/E multiple to earnings growth, is a key part of Lynch’s valuation method. A PEG under 1 implies a stock could be undervalued considering its growth path. InMode’s PEG of 0.34 is much lower than this level, indicating the market may not be completely accounting for its past growth. This makes the company especially interesting for GARP investors, who search for growth that isn’t too expensive.

• Financial Health and Low Leverage: Lynch required strong balance sheets, ideally with little or no debt. InMode has a debt-to-equity ratio of 0, meaning it functions without borrowing, a rare and beneficial situation that lowers risk and offers adaptability. Also, its current ratio of 9.6 shows strong short-term liquidity, greatly exceeding the minimum level Lynch supported. These elements are key to making sure the company can withstand economic slumps and put money into future growth without financial pressure.

• Profitability and Efficiency: Return on equity (ROE) is another measure Lynch used to assess management’s skill at creating profits from shareholder capital. InMode’s ROE of 28.4% is much higher than the 15% minimum Lynch suggested, putting it with the best in its field. High ROE often links to lasting competitive benefits and effective capital use, features Lynch saw as necessary for long-term compounding.

Apart from these screening measures, InMode’s fundamental profile supports its attractiveness. The company has an overall fundamental rating of 7 out of 10, with high marks in profitability and financial condition. It is very good in margins and returns on capital, although recent growth has slowed. Its valuation multiples, including P/E and EV/EBITDA, are particularly low compared to industry rivals and the wider market, hinting at possible undervaluation. For a complete overview, readers can see the full fundamental analysis report here.

It is important to mention that while the Lynch screen offers an organized beginning, additional research into qualitative factors, like industry placement, innovation pipeline, and competitive strengths, is necessary. InMode works in the expanding medical aesthetics field, which gains from population trends and rising demand for non-invasive treatments.

For investors wanting to look into other companies that match this method, more screening outcomes are available through the Peter Lynch Strategy stock screener.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own due diligence and consult with a financial advisor before making investment decisions.