MIAMI - DOMA Perpetual Capital Management LLC, a significant shareholder in InMode Ltd . (NYSE: NASDAQ:INMD), has publicly addressed the company's Board of Directors, proposing an immediate 40% tender offer of the company's stock. This move comes as a response to what DOMA Perpetual perceives as InMode's inefficient capital allocation strategy and declining stock price.
InMode, known for its medical devices for minimally invasive aesthetic procedures, boasts a robust balance sheet with nearly $800 million in cash, representing about 55% of its market capitalization. Despite this, the company's stock price has been falling, which DOMA attributes to a lack of confidence in the board's ability to generate shareholder returns.
DOMA Perpetual criticizes InMode's current capital strategy, highlighting the absence of attractive acquisitions despite the company's extensive search. The asset management firm contrasts the high valuation of potential acquisition targets with InMode's own undervalued stock, suggesting that a tender offer would be a more prudent use of capital.
The letter from DOMA Perpetual outlines a comprehensive capital allocation strategy, which includes continuing investment in research and development, being patient with large mergers and acquisitions, and rethinking dividend policies. It emphasizes that InMode should capitalize on its high net income margins, lack of debt, and significant free cash flow to execute a large tender offer, rather than waiting for an ideal acquisition opportunity.
DOMA Perpetual's CEO & CIO, Pedro Escudero, argues that the board's hesitance to approve a significant tender offer could indicate a failure to recognize the opportunity to enhance shareholder value or a lack of commitment to fiduciary duties. The firm warns that inaction may expose InMode to the risk of a hostile takeover due to its attractive financial position and untapped debt capacity.
This call to action is based on a press release statement from DOMA Perpetual, and it represents a critical moment for InMode, as it faces pressure from one of its largest shareholders to take decisive steps to improve shareholder returns.
In other recent news, InMode Ltd. has reported a shortfall in its second quarter pro forma sales, which are estimated to be between $102.4 million and $102.5 million, compared to the consensus estimate of $116.6 million.
Consequently, InMode has adjusted its full-year 2024 revenue forecast to the range of $430 million to $440 million, a decrease from the previous guidance of $485 million to $495 million. Amid these developments, Jefferies and UBS have revised their price targets for InMode to $19 and $20 respectively, with Jefferies downgrading the stock from Buy to Hold due to challenges within the aesthetic market.
The company, which reported first-quarter 2024 earnings with a total revenue of $80.3 million, has been facing difficulties in stimulating increased demand for its new platforms, IgniteRF and Optimus Max.
These challenges, coupled with a significant miss on operating margins, have led analysts to maintain a cautious stance on InMode's near-term prospects. Despite these headwinds, the company remains focused on fulfilling pre-orders and expects market demand to pick up in the latter half of 2024.
These recent developments come amidst broader economic pressures and industry headwinds, which analysts from Jefferies and UBS believe may impact InMode's performance and ability to meet its guidance and consensus estimates for 2024 and 2025. As the company navigates these challenges, it continues to invest in its business, leveraging its financial flexibility to manage the current economic landscape.
InvestingPro Insights
In the midst of DOMA Perpetual Capital Management's appeal to InMode Ltd. (NYSE: INMD) for a significant tender offer, a glance at the company's financials through InvestingPro reveals some critical metrics. InMode, with a market capitalization of approximately $1.5 billion, is trading at a P/E ratio of 8.26, indicating a potentially undervalued status relative to its earnings. This aligns with DOMA Perpetual's argument about the company's stock being undervalued.
Moreover, the company's strong gross profit margin, standing at 83.1% over the last twelve months as of Q1 2024, reinforces the robustness of InMode's balance sheet that DOMA Perpetual highlights.
Two InvestingPro Tips that could be particularly relevant to investors considering DOMA's proposal include InMode's advantageous cash position, as the company holds more cash than debt, and the fact that it is trading at a high P/E ratio relative to near-term earnings growth. These insights suggest that while the company is fundamentally strong, its growth in terms of earnings may not be keeping pace with its current valuation.
Investors seeking to delve deeper into InMode's financials and future prospects can find additional insights on InvestingPro. There are currently 9 more InvestingPro Tips available, which could provide further clarity on whether the proposed tender offer aligns with the company's financial standing and market expectations. For those interested in accessing these tips and comprehensive metrics, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
As InMode considers its capital allocation strategy amidst shareholder pressure, these InvestingPro insights could be instrumental for investors in understanding the company's financial health and the potential impact of a tender offer on shareholder value.
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