InMode Ltd (NASDAQ:INMD): A Peter Lynch-Style GARP Investment Candidate

Investment methods that combine expansion possibility with fair prices have long drawn market players looking for lasting results. The Peter Lynch system, explained in his book One Up on Wall Street, focuses on finding companies with good but controlled expansion paths, sound financial condition, and appealing prices. This method steers clear of speculative high-expansion businesses in favor of those showing steady earnings and acceptable price-to-earnings ratios compared to their expansion, making it especially suitable for long-term expansion at a fair price (GARP) investors. One company that recently appeared through a filter using Lynch’s rules is InMode Ltd (NASDAQ:INMD).

Meeting Lynch’s Expansion and Price Standards

A central idea of the Lynch system is to find companies with profit expansion that is significant but also maintainable, usually between 15% and 30% each year over five years. This protects against overheated expansion that cannot continue. The method also uses the PEG ratio, which connects the price-to-earnings (P/E) ratio to profit expansion, to locate stocks that are fairly priced relative to their expansion possibility.

InMode Ltd fits well with these ideas based on the filtering information:

• EPS Expansion (5-Year): 22.98%, which sits within Lynch's preferred 15-30% span, showing good but not extreme historical growth.
• PEG Ratio (Past 5 Years): 0.39, much lower than the Lynch limit of 1. This indicates the stock is possibly undervalued when its past expansion is examined.

Financial Condition and Earnings

Lynch favored companies with strong balance sheets, minimal debt, and high returns on equity. A sound financial base lowers risk and shows effective use of shareholder money, which is vital for long-term compounding.

InMode’s financial numbers reflect this discipline:

• Debt-to-Equity: 0.0, showing the company works with no interest-bearing debt, greatly exceeding Lynch's liking for a ratio under 0.6.
• Current Ratio: 9.54, displaying outstanding short-term liquidity and a solid capacity to meet its near-term responsibilities.
• Return on Equity (ROE): 28.50%, much higher than the 15% minimum Lynch wanted, indicating very effective use of equity to produce earnings.

Fundamental Examination Summary

A detailed fundamental report on InMode gives it an overall rating of 7 out of 10, placing it well within the Health Care Equipment & Supplies industry. The examination points out two strong areas: very good earnings and strong financial condition. The company's price is also rated highly, described as quite fair. However, the report mentions a main point for investor attention: the company's expansion rating is weaker, affected by a recent reduction in both profits and income compared to its good past performance. This mixed situation shows the need for more detailed research to decide if the recent slowdown is a short-term issue or a lasting pattern.

A Candidate for the GARP Investor

For investors looking for expansion at a fair price, InMode offers a strong case. It satisfies a strict filter based on Peter Lynch's proven method, which concentrates on maintainable expansion, financial strength, and appealing prices. The company's perfect balance sheet, high earnings, and low PEG ratio are especially convincing. While its recent expansion speed has decreased, its basic financial health and price offer a buffer. Investors should study whether the company's new technologies in the aesthetic medical field can increase its expansion speed again in the future years.

This examination was built on a stock filter made to find companies fitting Peter Lynch's investment rules. You can look at more companies that currently satisfy this filter to find other possible long-term investments.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. All investments involve risk, including the possible loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.