3 Reasons to Sell MAKO Surgical Today

I'm going to attempt something a little odd today, Fools. Even though MAKO Surgical (UNKNOWN: MAKO.DL  ) stock makes up just less than 1% of my real-life holdings, I'm going to be giving you three reasons to consider selling the stock today.

Why am I doing this?

Recently, Nobel Prize winner Daniel Kahneman visited Fool headquarters in Virginia. While visiting, he talked about how a number of different biases can lead us to believe we can predict the future with relative certainty. In reality, he argued, we are just deluding ourselves.

It got me to thinking about how I don't write enough about the risks of owning the stocks I own. So, though I don't plan on selling my MAKO stock right now, I think it's healthy for me to practice and model this behavior.

1. Management doesn't have a good idea of what's going on
One of the biggest reasons why MAKO's stock sits 70% lower today than it did in March 2012 is that management has not been able to get an accurate read on how its product will sell. This led to overly optimistic predictions that sent shares as high as $43.75. Today, MAKO trades hands at about $12.30.

The trouble started in May 2012, when management announced that sales of the company's RIO system -- which helps perform hip and knee replacements -- came in at only six units. Revenue missed even the company's low-end projections.

To the frustration of investors, those overly optimistic projections continued. In July, the company announced the sale of only nine RIO systems. It's not a good sign when management seems that out of touch with its product's realistic potential.

2. There's no guarantee MAKOplasty will catch on
MAKOplasty is the name given to the procedure that the company's RIO robotic system can perform for partial knee and total hip replacement.

Source: MAKO Surgical.

Many investors -- including myself -- were quick to point out that MAKO was a lot like fellow robotic surgical company Intuitive Surgical (NASDAQ: ISRG  ) . Intuitive's da Vinci robot has become a standard in hospitals around the world for performing prostatectomies and hysterectomies. It is also being explored for a variety of other potential surgical operations. Since March 2003, Intuitive's stock has returned more than 6,500%!

But there are two big differences between Intuitive and MAKO. The first is that Intuitive's da Vinci likely has many more possible functions beyond its two core procedures. It is really the only soft-tissue robotic play on the market. MAKO's RIO deals more with precision cutting on bone replacements. Those are two very different functions, with divergent avenues for growth.

The second major difference is that the medical community has largely accepted the da Vinci. At the end of 2012, there were 2,585 da Vinci systems in use worldwide, and they performed 450,000 procedures during the year.

MAKO, on the other hand, had only 156 RIO systems in place at year's end, which had performed only 10,204 procedures during 2012. That's a big difference.

3. The company is not yet profitable
Given that management hasn't been able to provide accurate forecasts, and the company's adoption rates aren't totally encouraging, investors should be aware that MAKO also has yet to turn a profit. In fact, management states: "We expect to continue to incur significant operating losses as we increase our sales and marketing activities and otherwise continue to invest capital in the development and expansion of our products." 

That's an important factor take into consideration before putting your own money into the stock.

What I'll be doing
At the end of the year, I'll be reviewing whether MAKO will stay in my Roth IRA. Given that it's such a tiny part of my overall holdings, I see little downside and lots of potential upside should MAKO prove to be a serious value-add for hospitals and patients alike.

To help investors dig deeper into MAKO, Fool.com analyst and MAKO expert David Meier has authored a premium research report covering all of the must-know details on the company, including key areas to watch and risks looming in the future for the medical robotics company. Claim your copy by clicking here now.



Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 05, 2013, at 12:36 PM, silverant wrote:

    The case you made for Mako is a mirror image of Intuitive at a similar stage of development. Da Vinci did not start out with the broad scale use it now enjoys. There were serious set backs - look at the chart for ISRG and see how it corrected from 300 (down 60%) before resuming its climb to its current PPS.

    "There's no guarantee MAKOplasty will catch on."

    Welcome to the world of no guarantees about anything. However, if you talk to anyone below 110 :) years of age, this is the way they want to do knee surgeries, so I believe the day will come when that chasm of resistance is breached to the stage of hospitals capitulating to owning a Rio.

    Moreover, just as with Da Vinci, where there has emerged a trend toward free-standing surgical clinics performing elective surgeries, Ortho clinics are following suit. Hospitals are losing revenues generated by surgeons because they fall behind he curve, behaving like dinosaurs.

  • Report this Comment On June 05, 2013, at 7:54 PM, jimmymason wrote:

    Yes, Intuitive was a mere penny stock not too long ago ! They even did a reverse split in 2003 !! LOL .... Don't you wish you would have bought then ? You can never get a bargain if you wait for everything to smell like roses. I am in concurrence with the other poster.

  • Report this Comment On June 06, 2013, at 11:27 PM, TMFCheesehead wrote:

    @jimmy and silver-

    Remember, I, too, am a shareholder of MAKO. As the first section says, I think its valuable for any investor to explore reasons to sell. It's one way I try and not fall victim to a whole slew of biases (though I'm sure some will always play a role)

    Brian Stoffel

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