InMode Ltd.'s (NASDAQ:INMD) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

InMode’s ROE.” data-reactid=”28″>Most readers would already be aware that InMode’s (NASDAQ:INMD) stock increased significantly by 11% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on InMode’s ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.

See our latest analysis for InMode ” data-reactid=”30″> See our latest analysis for InMode

How Do You Calculate Return On Equity?

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for InMode is:

24% = US$50m ÷ US$205m (Based on the trailing twelve months to June 2020).

The ‘return’ is the profit over the last twelve months. One way to conceptualize this is that for each $1 of shareholders’ capital it has, the company made $0.24 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don’t have the same features.

InMode’s Earnings Growth And 24% ROE

Firstly, we acknowledge that InMode has a significantly high ROE. Additionally, the company’s ROE is higher compared to the industry average of 13% which is quite remarkable. Under the circumstances, InMode’s considerable five year net income growth of 61% was to be expected.

We then compared InMode’s net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 15% in the same period.

More

3 valuation measures might help you decide.” data-reactid=”58″>Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is InMode fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is InMode Efficiently Re-investing Its Profits?

Given that InMode doesn’t pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

report on analyst forecasts for the company to find out more.” data-reactid=”62″>On the whole, we feel that InMode’s performance has been quite good. In particular, it’s great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.