Buy, Sell, or Hold: MAKO Surgical

When considering any stock for your portfolio, don't be swayed just by the positives. Examine its pros and cons, and decide whether it's possible upsides outweighs its risks. Let's take a look at MAKO Surgical (Nasdaq: MAKO  ) today, and see why you might want to buy, sell, or hold it.

Like Intuitive Surgical (Nasdaq: ISRG  ) , which has been a multi-bagger for many Fools ever since our Rule Breakers newsletter service recommended it, MAKO is in the business of making robotic surgery equipment. Over the past year its stock has surged about 54%.

The first reason to consider buying into MAKO is its line of business. It's hard to argue with robotic surgery, as it's less invasive and lets patients heal faster. Indeed, MAKO's recent revenue growth rates reflect the fact that hospitals are buying more and more of its machines:

  • one-year average annual revenue growth rate: 91%
  • three-year average annual revenue growth rate: 206%
  • five-year average annual revenue growth rate: 322%

The business model relies not only on growing sales of machines to hospitals, but also on generating reliable recurring revenue, as those hospitals keep signing up for service contracts and keep buying consumable supplies and accessories for the machines.

Demographic trends are on MAKO's side, as well. With the global population growing and more people living longer, there will be greater demand for health-care services. While Intuitive Surgical's machines currently focus mostly on prostatectomies and hysterectomies, MAKO's specialize in knee and hip repairs.

Check out this room for growth: In the U.S. alone, close to 800,000 knee replacements and more than 600,000 hip replacements were performed in 2009. Meanwhile, in 2011, 6,932 procedures were performed on MAKO machines (double the year-earlier number). MAKO is growing rapidly, and clearly has a lot of market share available to grab.

The company's financial statements show promise, too, with gross margins rising from around 37% in 2009 to more than 68% recently.

Finally, here's another growth catalyst for MAKO: new kinds of procedures. If, over time, it gets approval to perform new kinds of procedures with its existing machines or with newly developed ones, it will be able to tap new markets.

While all the above factors are very exciting, there are also reasons you might want to sell MAKO. For one thing, the company is not yet profitable. That's not to say it won't be one day, but you have many other profitable options.

You might worry about increased regulation or taxation, as well. The Patient Protection and Affordable Care Act (PPACA), for example, is levying a new 2.3% tax on the sales of medical devices in the U.S. starting in 2013.

If you find yourself bearish on the company, you're not alone. Nearly half of the stock's float has been sold short -- 48% as of the end of March. That's a lot of negativity -- though it might actually turn into a big plus for investors. If the stock keeps rising, investors who have shorted will "cover" their positions by buying shares and thereby boosting the price further, and voila -- you have a "short squeeze."

Given the reasons to buy or sell MAKO, it's not unreasonable to decide to just hold off. You might wait for it to post a series of profitable quarters. You might wait for more hospitals to buy its machines and more procedures to be performed with them. You might even wait for the company to add more kinds of procedures to its lineup.

While you wait, you might want to consider other companies in similar businesses, besides Intuitive Surgical. Relatively tiny Hansen Medical (Nasdaq: HNSN  ) is applying robotic surgical equipment to catheter procedures, and has recently seen sales pick back up. Medical device company NuVasive (Nasdaq: NUVA  ) specializes in spinal treatments; its revenue has also grown impressively (and consistently) over the last five years, though its earnings have turned negative recently.

For a larger, more stable, and more diversified traditional medical device companies, look at Johnson & Johnson or Stryker (NYSE: SYK  ) . Johnson & Johnson sports a broad product line (including baby shampoo and Tylenol) and a solid, long-standing dividend. Stryker, maker of implants, orthopedic equipment, and more, has a lot of characteristics of the perfect stock

The verdict
I found enough for me to like about MAKO Surgical last year -- and bought a few shares. You may come to a different decision, though, which won't necessarily be a mistake. After all, there are plenty of compelling stocks out there with less uncertain futures.

And if you're looking for explosive growth but are a little queasy about the medical arena, check out our special free report, "3 Hidden Winners of the iPhone, iPad, and Android Revolution." Mobile phones are ushering in a profitable revolution just as surgical robots are.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter here, owns shares of MAKO Surgical, Intuitive Surgical, Hansen Medical, and Johnson & Johnson, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson, Intuitive Surgical, and MAKO Surgical. Motley Fool newsletter services have recommended buying shares of Stryker, Intuitive Surgical, Johnson & Johnson, and MAKO Surgical. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (1) | Recommend This Article (16)

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 May 01, 2012, at 9:57 AM, Borisbmx wrote:

    I would like to verify if this is a medical franchise with solid patent protection.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1872213, ~/Articles/ArticleHandler.aspx, 10/27/2016 8:50:29 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
MAKO.DL $0.00 Down +0.00 +0.00%
MAKO Surgical CAPS Rating: ****
HNSN $0.00 Down +0.00 +0.00%
Hansen Medical CAPS Rating: *
ISRG $663.23 Down -2.49 -0.37%
Intuitive Surgical CAPS Rating: ****
NUVA $58.00 Down -0.84 -1.43%
NuVasive CAPS Rating: *****
SYK $109.72 Down -0.17 -0.15%
Stryker CAPS Rating: *****