INMODE LTD (NASDAQ:INMD): A Peter Lynch-Style GARP Investment

The investment philosophy created by Peter Lynch centers on finding companies with good growth potential that are available at fair prices, a method often called Growth at a Reasonable Price (GARP). Lynch’s system, explained in his book One Up on Wall Street, stresses lasting earnings growth, solid financial condition, and profit generation, while steering clear of companies with high debt or unstable growth speeds. This method aims to create a varied, long-term portfolio by picking businesses that are expanding and have strong foundations.

Matching the Lynch Criteria

INMODE LTD (NASDAQ:INMD) seems to fit a number of important filters from the Peter Lynch screening method. The company’s financial numbers meet or pass the specific levels Lynch supported, indicating it might be a possibility for investors looking for long-term growth at a fair price.

• Earnings Per Share Growth: Lynch liked companies with steady, maintainable earnings growth, usually from 15% to 30% each year. INMD states a 5-year EPS growth rate near 23.0%, which fits inside this desired zone, showing a record of solid, but not excessive, growth.
• PEG Ratio: A key part of Lynch’s price check, the PEG ratio (P/E ratio divided by growth) should be 1.0 or less to show a good price. INMD’s PEG ratio, calculated from past growth, is a very low 0.35, hinting the market might be pricing its historical growth path too low.
• Debt-to-Equity Ratio: Financial steadiness was very important for Lynch, who favored companies with very little debt. INMD does very well here with a Debt-to-Equity ratio of 0.0, showing no debt and a strong balance sheet that goes beyond Lynch’s strict liking for a ratio under 0.25.
• Current Ratio: To check short-term financial condition, Lynch wanted a Current Ratio of at least 1.0. INMD’s Current Ratio of 9.6 shows very high liquidity, giving a large safety net for its short-term bills.
• Return on Equity (ROE): Profit generation is measured by ROE, with Lynch looking for numbers over 15%. INMD’s ROE of 28.4% shows a very good use of shareholder money to create profits.

Fundamental Analysis Summary

A full fundamental analysis for INMD gives the company a total score of 7 out of 10, placing it well inside the Health Care Equipment & Supplies industry. The report points out two especially good parts: profit generation and financial condition. The company’s profit margins and returns on assets and invested money are rated with the top in its field. Also, its price is seen as very low, particularly when looking at its price-to-earnings ratios compared to both the industry and the wider S&P 500. The main point of worry mentioned in the report is a recent slowing in growth, with both revenue and earnings per share showing a small drop over the last year, although they stay good over several years.

A GARP Investment Possibility

For investors using a GARP method, INMD offers an interesting outline. The company has a proven record of good earnings growth and high profit generation, all while being priced at a level that seems inexpensive. The total lack of debt and high liquidity numbers give a safety cushion that is highly valued by long-term, fundamentals-focused investors. While recent growth has slowed, the company’s basic financial strength and low price compared to its past performance create a situation where it could be set up well for patient investors.

The Peter Lynch screen used to find INMD can be a beginning for more study. You can find other companies that match this method by looking at the Peter Lynch Stock Screener.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The opinions expressed are based on current market conditions and available data, which are subject to change. Investors should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.