Hold Off on Hansen

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Last month, I explored whether you should buy shares of Hansen Medical (Nasdaq: HNSN). Even though I love the company, I decided that I wanted to see some sales figures and updated management comments before making a call on whether this medical-device innovator was a good buy.

Now that we've heard the results from the earnings call, I feel stronger about waiting before buying shares. In fact, I'll now say that Hansen is not a buy until the stock goes for less than $20. I know that would be a massive 50% drop from current prices, but a market cap of more than $600 million is not justifiable without pricing in a lot of future sales that, frankly, may not materialize. The momentum run that this stock took is over, and now it's time to focus on value.

The sales ramp
It doesn't bother me that Hansen recorded just five system sales for a total of $3.5 million in revenue for the quarter. The company is very early in the launch-and-adoption phase, and the ramping up of sales will not happen overnight. As discussed in the earnings call, Hansen is in the process of building out manufacturing capacity, and the company looks to be supply-constrained until at least the second quarter of next year. It could take as much as a year for all of the pieces to be in place for sustainable revenue growth. The company also currently has its hands full taking on competitor Stereotaxis (Nasdaq: STXS). But again, none of this bothers me. When you're dealing with fledgling companies, these things come with the territory.

Acquisition
Hansen also announced its plans to acquire privately held medical-device company AorTx -- which has developed a catheter-based, minimally invasive aortic valve replacement therapy -- in a $10 million cash and stock transaction. Although there are certainly technical challenges to overcome, I think it makes sense to try combining Hansen's robotics expertise with the AorTx catheter-based technology, especially since more than 45,000 people have aortic valve replacements done every year in the United States, and an equal number are ineligible for the more invasive open heart surgery that's generally required to perform such a procedure.

Foolish final thoughts
Comparisons between Hansen and medical-device phenom Intuitive Surgical (Nasdaq: ISRG) are premature. Before I'd go that far, I'd wait for accelerating sales growth of Hansen's systems to prove that its technology will gain acceptance. It's one thing to have a potentially great technology; it's another for people to actually use it. Hype and hope don't make for an investment thesis. Booking sales at an increasing rate does. Wait for that to happen first.

With the sales ramp needing at least a year, there's plenty of time to wait and cherry-pick a good price to buy Hansen, and I think that price is far lower than where shares are trading today. If you really want to own some shares, I'd suggest buying a smaller-than-normal position to leave some cash free for doubling or tripling down later, in case the stock drops -- as I think it will.