Inmode (NAS:INMD) — mrkt cap 2.29B; Price $27.99; trailing P/E 12.89
PASS. To our surprise, we had over a dozen readers write to us wanting to know more about this name. At this time, we are passing. Further research and talks with insiders have led us to believe that Inmode is in danger of becoming a one-product company with the Morpheus8 as their flagship. The platform still maintains a competitive advantage in the marketing department (some clients request Morpheus8 treatments directly) and a slight technological advantage. However, the Radio Frequency Microneedling space has heated up dramatically since 2018 with strong competitors like BTL, Candela, Sciton, Alma, Cutera, Lumins, Lutronic and BENEV having competing products. Couple this exceedingly competitive industry with the fact that Inmode is now charging for demos, has poor customer service, is contending with financing costs that are likely to remain higher for longer, and it is just too many negatives for us.
Dollar General (NYSE:DG) — mrkt cap 22.7B; Price $103.37; trailing P/E 10.59
PASS. After researching DG more, we are passing on it. Despite DG’s impressive operating history and unique retail positioning to low-income shoppers in rural areas, we believe their future growth trajectory is uncertain. Dollar General has fully matured its U.S. footprint having the most retail locations out of any retailer at ~19,000 stores. Growth has come from an increase in store count and SSS. We believe these factors have headwinds as price increases have put pressure on their target demographic. DG is also making increased capital investments to operate more like a traditional grocery store which will put pressure on FCFF and place them in a more competitive market.
Babcock & WIlcox (NYSE:BW) — mrkt cap 300mm; Price $3.39; trailing P/E NA
MORE RESEARCH NEEDED. BW is an energy and environmental technology and services company. They historically produced boilers and combustion systems for plants with aftermarket parts and services making up 30% of revenues. Over the last several years BW has positioned itself to also offer renewable technologies through their Bright Loop technologies and Climate Bright platform. The strategy is to use their existing install base to upsell customers on these newer technologies. This segment has seen significant growth over the last two years, growing about 200% and becoming about 40% of revenues. BW also expects their backlog to grow more than 50% in the next six months given the deluge of projects in the pipeline. Although the growth is there, cash flows have yet to materialize. This is a highly competitive industry and if BW’s strategic positioning is the same as their legacy business, then it’s share price will continue to decline. More diligence is needed to discern if BW’s future will look different than its past.