TransEnterix (NYSEMKT:TRXC), a robotic surgery company, saw its shares plummet by as much as 24.4% in early morning trading today. The spark?
The company's shares fell after BTIG's Sean Lavin downgraded the stock, implying a possible 40% downside risk from current levels. TransEnterix's shares recovered after their early slump, but remained down by 6.85% as of 11:22 a.m. EDT.
Prior to today's pullback, TransEnterix's shares were up by over 200% for the year, thanks to the red-hot start for the company's newly approved Senhance Surgical System. Wall Street simply wasn't expecting the Senhance system to gain much traction early on due to the sheer expense associated with buying and servicing robotic surgery platforms, combined with Intuitive Surgical's long-standing first-mover advantage with its da Vinci system. However, TransEnterix, a tiny upstart, proved analysts dead wrong by selling a whopping five systems over the course of the first and second quarters of this year.
Is the BTIG analyst correct about TransEnterix's outlook? My view is that the answer is definitely yes. TransEnterix's shares ran too hard and too fast, basically. Backing up this assertion, the company's stock is now trading at an absurd price to sales ratio of 111.72. That's the epitome of irrational exuberance in my book, and clearly shows that TransEnterix's valuation is not supported by its underlying fundamentals.
As such, I'd stay away from this stock until it sheds a significant chunk of its value. That's not to say TransEnterix isn't a solid company, but the market seems to have gotten ahead of itself on this one.