How Low Can MAKO Surgical Go?

Shares of MAKO Surgical (Nasdaq: MAKO  ) hit a 52-week low on Wednesday. Let's look at how it got here and see whether dark clouds lie ahead.

How it got here
It's been a rather gloomy couple of quarters for MAKO investors, myself included. Actually, "rather gloomy" doesn't even cut it. It's been downright miserable. Following up a 37% plunge after disappointing first-quarter sales of its RIO system, shareholders were gain taken out to the shed for a 40% haircut this week after second-quarter sales figures also came in soft.

Procedure activity and machine utilization remain healthy, but a lot of MAKO's disruptive story still relies on RIO system sales to deliver all those procedures in the first place. CEO Maurice Ferre said the company is seeing its sales process extend as hospitals are focusing more heavily on making sure they get enough bang for their buck before making the plunge. It's a growing pain that MAKO admittedly needs to mitigate to improve its near-term execution.

The company's disruptive potential had led to some premium valuations after MAKO sold a strong 18 systems in the fourth quarter, but now shares have come fallen with a vengeance, after that potential is being questioned with two quarters of weak RIO sales.

How it stacks up
Let's see how MAKO stacks up with its medical-device peers.

MAKO Chart

MAKO data by YCharts

Let's look at some fundamental metrics for more insight.

Company

P/S (TTM)

Sales Growth (MRQ)

Net Margin (TTM)

ROE (TTM)

MAKO Surgical 6.6 50.8% (40.5%) (35.4%)
Intuitive Surgical (Nasdaq: ISRG  ) 11.3 27.6% 28.7% 20.7%
Zimmer (NYSE: ZMH  ) 2.5 2.3% 17% 13.2%
Hansen Medical (Nasdaq: HNSN  ) 6.3 (11.8%) (187%) (118.3%)

Source: Reuters. TTM = trailing 12 months. MRQ = most recent quarter.

MAKO's valuation has plummeted as it tries to disrupt traditional rivals like Zimmer. The biggest fear is that MAKO won't follow in Intuitive Surgical's success and will instead see its devices lose traction,as Hansen Medical's have. It's too early to jump to that conclusion, but that's a scary thought for investors.

What's next?
It's crunch time for MAKO. The next six quarters or so will be pivotal in determining its fate. The release this week only included select operating results and not full financials. It's still finalizing its figures, but I'm going to keep an eye on its cash balance to gauge how long it might have before potentially needing to tap its dilutive financing agreement. If MAKO fails to close these deals next year as it expects to, then further downside could be in store.

For some safer picks that aren't likely to see these types of swings, maybe these three Dow dividend stocks will do. Grab this free report to read more.

Fool contributor Evan Niu owns shares of MAKO Surgical, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Intuitive Surgical, MAKO Surgical, and Zimmer Holdings. Motley Fool newsletter services have recommended buying shares of MAKO Surgical and Intuitive Surgical. We Fools don't 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. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | 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 July 12, 2012, at 4:55 PM, FWWright wrote:

    I to am long MAKO (sold the July 20 puts which are now way under-water). I looked at the stock and (I hope not foolishly) decided to try to work my way out of it so I will be owning the stock come 7/21 and thus I have already written the Nov 20 calls for a buck to reduce my break even. We are all getting older and our hips/knees are wearing out and perhaps the RIO system will help reduce our unsustainable medical costs of living longer.

  • Report this Comment On July 13, 2012, at 11:53 AM, mieswall wrote:

    MAKO, One more sound advice from Motley fool....

    My track record of a year of MF recs:

    GMCR: -71%

    IPGP: -20%

    LULU: -14%

    MAKO: -61%

    RAX: -17%

    BIDU: -30%

    A compound loss of over half of the money invested in MF recs.

    In the meantime, the MF insistently denied AAPL: +85%.

    Should I keep reading you?

  • Report this Comment On July 13, 2012, at 12:41 PM, tgr81446 wrote:

    what is your MAKO recomendation,,, ?????

    Your reviews , as you most recent concernining MAKO in my view are unclear as to future recommendations,,, sell, hold etc.

    Very clearly you do state when its time to buy, I do rely on your input, that is why i subscribe to the newsletter.

    Let me know

  • Report this Comment On July 14, 2012, at 2:13 AM, Darkdemon05 wrote:

    I remember Motley Fool recommended this stock for the entire 2010 and now they are singing different tone. We should abandon these guys.

  • Report this Comment On July 16, 2012, at 1:20 PM, ems79 wrote:

    mieswall, MF:SA has consistently listed AAPL as a Best Buy, snot sure what you mean by saying they denied it?

    MF:SA has no rec for MAKO, tho I did buy based on their "Special Report" ... I am down ~55%, based on the information I've gathered I'm unwilling to risk my remaining ~45% on a long shot, so I pulled and will invest elsewhere.

  • Report this Comment On July 17, 2012, at 9:56 AM, markm2010 wrote:

    I've never been more disappointed with a recommendation as I have with Mako, what's the plan? This stock was touted as the next 10 bagger following in ISRG footsteps, Ops......sure got that one wrong at least in the short term!

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