Has MAKO Surgical Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if MAKO Surgical (UNKNOWN: MAKO.DL  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at MAKO Surgical.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-year annual revenue growth > 15%

207.6%

Pass

 

1-year revenue growth > 12%

58.7%

Pass

Margins

Gross margin > 35%

67.5%

Pass

 

Net margin > 15%

(30.7%)

Fail

Balance sheet

Debt to equity < 50%

0%

Pass

 

Current ratio > 1.3

4.21

Pass

Opportunities

Return on equity > 15%

(33.1%)

Fail

Valuation

Normalized P/E < 20

NM

NM

Dividends

Current yield > 2%

0%

Fail

 

5-year dividend growth > 10%

0%

Fail

       
 

Total score

 

5 out of 9

Source: S&P Capital IQ. NM = not meaningful due to negative earnings. Total score = number of passes.

Since we looked at MAKO Surgical last year, the company hasn't seen its score change. But investors weren't as lucky with its share price, which has plunged by half in the past year.

MAKO has become well-known for its RIO systems, which allow doctors to do orthopedic surgery robotically. Following in the steps of Intuitive Surgical (NASDAQ: ISRG  ) and its da Vinci robotic surgical system, MAKO has tried to further the use of robotics in medicine for procedures that have become increasingly necessary for an active but aging population.

But 2012 has been a horrible year for MAKO. In announcing its first-quarter results, the company said that sales of systems had fallen well below expectations and lowered its guidance for the remainder of 2012. The second quarter brought even more disappointment, and most recently, news that privately held Blue Belt Technologies and its NavioPFS orthopedic robotic surgical system received FDA approval has pushed the stock down further.

Even worse, provisions of health-care reform could truly smack MAKO. Starting next year, a 2.3% excise tax on medical devices will take effect. Because the tax is on revenue rather than profits, it'll hit MAKO and Hansen Medical (NASDAQ: HNSN  ) especially hard, as they're not making money even before the tax. Even big companies Medtronic (NYSE: MDT  ) and Stryker (NYSE: SYK  ) will suffer from the tax, with Stryker saying it would need to lay off 5% of its workforce in part due to its effects.

For MAKO to improve, it needs to get past controversies over its RIO systems and start boosting sales. If it can't, then MAKO may never be able to call itself a perfect stock.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Learn more about MAKO's future by reading the Fool's premium research report on the company. Inside, Fool analyst and MAKO expert David Meier gives his scoop on whether MAKO is a buy after its big plunge in 2012. As an added bonus, David will keep you informed with a full year of updates and guidance on MAKO Surgical as news breaks. Click here now to learn more and start reading.

Click here to add MAKO Surgical to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (4) | 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 December 13, 2012, at 10:12 PM, vv234 wrote:

    The title of this article looks and sounds so dumb, even to a fool!

  • Report this Comment On December 14, 2012, at 9:16 AM, DrDeVito wrote:

    This is a standard fool title they put up every single time they evaluate a stock...It hasn't changed in like 5 years

  • Report this Comment On January 04, 2013, at 2:34 AM, mrpraxis wrote:

    Is this an April Fool's joke???? With the new tax on medical devices from ObamaCare.....and all the other internal issues that MAKO has been through this year etc..... I regret my investment in this one. And I am hoping in some fantasy world that it will someday approach my buy price so I can dump it....

  • Report this Comment On August 09, 2013, at 5:11 PM, chris293 wrote:

    Our government is wrong to tax revenue, greed? But they must have taken a socialist course in 'How to kill a business.' What this says is 'you should not have a better product or do something new to improve our lives!'

Add your comment.

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: 2152238, ~/Articles/ArticleHandler.aspx, 10/25/2014 8:19:55 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 23 hours ago Sponsored by:
DOW 16,805.41 127.51 0.76%
S&P 500 1,964.58 13.76 0.71%
NASD 4,483.72 30.92 0.69%

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 $0.96 Up +0.03 +3.23%
Hansen Medical CAPS Rating: ***
ISRG $478.01 Down -7.52 -1.55%
Intuitive Surgical CAPS Rating: ****
MDT $66.56 Up +0.95 +1.45%
Medtronic CAPS Rating: *****
SYK $84.22 Up +0.69 +0.83%
Stryker CAPS Rating: *****

Advertisement