It's been a rough year for robotic-surgery innovator MAKO Surgical (Nasdaq: MAKO ) . After reaching all-time highs in the spring, its stock fell through the floor following weak first-quarter earnings. The beating turned into a bloodbath in the wake of similarly disappointing second-quarter earnings. Long-term investors are still showing gains, but that's little consolation for more recent buyers:
Source: MAKO Surgical total return price data by YCharts.
Can MAKO recover? Investors will need to keep their eyes on three key trends that will determine whether the company gets unplugged from life support or becomes a star again.
1: Can MAKO sell more systems?
MAKO's latest guidance calls for sales of 42 to 48 RIO surgical systems for the full year. That's still fully possible, as the company sold 21 systems over the first half. However, even the high end of this estimate would only match MAKO's 2011 system sales, and flat sales growth is not something any growth investor wants to see. It also represents a steep drop from guidance that started at 56 to 62 system sales and was lowered earlier in the year to 52 to 58.
Recovering from multiple guidance cuts will go a long way toward restoring investor confidence, but that's not the only big number we're watching.
2: Will MAKO beat its full-year procedure guidance?
Last year, MAKO's hospital clients performed 6,932 MAKOplasty procedures -- a doubling of 2010's numbers. The company still expects between 11,000 and 13,000 procedures to be performed for the full year, which would roughly double the rapid growth seen last year. That's still a long way off from the reported 360,000 procedures performed with Intuitive Surgical's (Nasdaq: ISRG ) machines in 2011. It also helps explain why MAKO still struggles to become profitable.
3: Is MAKO's specialized surgical niche big enough for long-term profit?
MAKO isn't profitable, but revenue is booming:
Source: MAKO Surgical total return price data by YCharts.
Meeting its procedure goals will go a long way toward making the company consistently profitable. Once its installed base is large enough and demand stays steady for MAKO procedures, it should finally tick into the black. However, it remains to be seen when that profitable date will arrive, as analysts don't see the company making a profit this year or next.
As mentioned earlier, widespread adoption is critical when pushing advanced technology in medicine. Fool analyst Evan Niu paints a gloomy picture of MAKO as another Hansen Medical (Nasdaq: HNSN ) , should sales and procedures fail to tick up significantly. Investors have to be strongly aware of their investing timeline when it comes to high-risk, high-reward stocks like MAKO (and, at one point, Hansen Medical as well).
MAKO may see substantial benefit from the increased health coverage Obamacare brings over the next few years. However, Obamacare may also manage to improve the long-term health picture of at-risk populations, thus decreasing the need for MAKO's joint-replacement procedures. Fool analysts John Reeves and David Meier presented a bullish pitch for MAKO last week that hinges on wider adoption, noting that MAKO's robotic surgeons have seen fairly consistent upticks in their usage over time. The more MAKOplasties doctors perform, the more comfortable they'll be. The virtuous circle will work in MAKO's favor, once it takes full effect.
Don't stop your research here. The Motley Fool has put together a premium research service for MAKO Surgical that can bring you the news and analysis you need. You'll be able to access a year's worth of detailed insight for less than it costs to make a single trade. Click here to dive deeper into MAKO today.
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Report this Comment On August 21, 2012, at 11:55 AM, TheRealStars1234 wrote:
How did you get to 21 systems sold over the first half? Q2 reports has 15.
Report this Comment On August 23, 2012, at 12:22 AM, MHedgeFundTrader wrote:
While in Zermatt, Switzerland recently, I took the opportunity to undergo my annual physical. Over the years, I have discovered that American doctors are so paranoid about getting sued that I can never get a straight answer about anything, so I do all of my physicals abroad.
I like visiting Dr. Christian because he is cut from the same cloth as I. He is a small wiry guy without an ounce of fat, and keeps his hair tied behind in a ponytail. Nothing like treating your patients through example. He has served as the team doctor on several Himalayan expeditions, reaching the incredible altitude of 25,000 feet without oxygen. He includes Mount McKinley and Aconcagua on his resume.
He gave me the good news: I had blood pressure of 110/70 and a resting pulse rate of 50. This was at an altitude of 5,500 feet, which always elevates one’s blood pressure. The bottom line was that I had the heart of a teenaged Olympic athlete. He told me that whatever I was doing, to keep on doing it. I said that would be strapping on a 60 pound backpack and climbing the 1,500 foot mountain in my backyard every night after work. He answered that would explain everything.
Dr. Christian usually allocates extra time for patients my age to deliver them bad news. That was unnecessary in my case. So we killed time trading notes on our favorite climbs.
I also grilled him on the state of the Swiss medical system. He complained that it was going downhill, but was nowhere near as bad as in the US, where his brother practices medicine. Everyone here gets medical care after paying a small premium. His liability insurance was only $3,000 a year, compared to $100,000 in the US. The only malpractice suits in Switzerland are brought by Americans, and they always lose.
The main reason medical costs were so low is that the people of Switzerland were so much healthier. Walking around the streets here, most people look like they are triathletes. And they do this despite smoking like chimneys. Maybe they are related?
Life expectancy in Switzerland is 82.2 compared to only 78.2 in the US. And the quality of life at old age is much better. Obesity is rampant at home, but rare in the Alps. Diabetes is unusual in Switzerland, but epidemic in the US. Over 400,000 Americans undergo kidney dialysis in the US, while the treatment is almost unheard of in Europe. This is why the US is spending 12% of GDP on health care, on its way to 17%, while Switzerland is flat lining at 8%, with an older population.
I thanked Dr. Christian for his advice. The total bill? $200. I headed to the local pharmacy to get a one year supply of my anti-cholesterol drug, which I can buy 90% cheaper than at home. That allows me to keep my total health care costs under $500 a year.
I then celebrated my good fortune by stepping across the street for a bratwurst and a beer, which my American doctor once banned me from. There, I planned my coming assault on the Matterhorn.
-The Mad Hedge Fund Trader
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