In the surgical robotics industry, it's critically important that surgeons are able to trust robotic surgical systems. After all, surgeons' reputations and their patients' lives hang in the balance.
In November, the digital surgery company Asensus Surgical (ASXC -0.82%) reported third-quarter results that suggest it is becoming more accepted by surgeons. But should growth investors buy the stock? Let's take a look at Asensus Surgical's fundamentals and valuation to try to answer this question.
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Strongly trending in the right direction
Asensus Surgical trounced analysts' revenue expectations in the third quarter ending Sept. 30. There were several encouraging takeaways from the company's earnings report.
First, Asensus Surgical's revenue soared 215.8% in the third quarter against the year-ago period to nearly $2.6 million. What makes this revenue growth especially incredible is that it came despite the COVID-19 delta variant disruptions that affected all of Asensus Surgical's key markets. Asensus Surgical's revenue in the third quarter more than doubled analysts' forecasts for $1 million in revenue for the period. So, how did the company manage to pull off a huge revenue beat?
Procedure volumes for Asensus Surgical's Senhance Surgical System in the third quarter were up 47% over the prior year. And even with the delta variant, procedure volumes still edged 5% higher compared to the second quarter, which was due to more hospitals purchasing or leasing the company's product and higher service revenue.
At the heart of more hospitals deciding to use Asensus Surgical's Senhance Surgical System is economics: The cost of a procedure using the system is between $300 and $500, which is well below the $1,800 average cost of a robotic surgery procedure including instruments and consumables. Asensus Surgical's CEO Anthony Fernando attributes this cost advantage to the system's reusable surgical instruments, which is a major competitive advantage that should drive further adoption of the system.
Another catalyst that will drive growth going forward is the U.S. Food and Drug Administration's recent clearance to allow expansion of machine vision capabilities for the Senhance Surgical System's Intelligent Surgical Unit. This will help surgeons reduce the risk of surgical errors and complications for their patients, building on the appeal of Asensus Surgical's product.
Because of the company's solid fundamentals, analysts expect it will be able to generate $11.2 million in revenue in 2022. This would represent a 54% sales growth rate over the 2021 forecast of $7.3 million. And it would be more than a tripling of revenue over the 2020 revenue base of $3.2 million.
The balance sheet to fund future growth
To further differentiate itself from competitors like Intuitive Surgical's da Vinci Surgical System, the company will need tons of capital. Fortunately, it has plenty of cash and investments available for sale to continue the research and development necessary to pull this off.
Asensus Surgical has $147.9 million in cash and investments, which is bolstered by the fact that the company has no long-term debt. This also gives it the leverage to up its marketing toward surgeons to further increase adoption rates for the Senhance Surgical System.
An attractively valued growth stock
The Senhance Surgical System is gaining acceptance from surgeons around the world, and the company has the capital to build on that momentum. But this leads us back to the original question: Is the stock a buy?
At Asensus Surgical's current market capitalization of $213 million, the stock is trading at a forward price-to-sales ratio of just under 20. Considering analysts' revenue estimates for 2021 and 2022, the company should realistically grow its revenue well over 20% annually in the years ahead.
And if that wasn't enough, Asensus Surgical is so cheaply priced that investors indirectly get back more than 60% of their investment via the company's aforementioned $147.9 million cash and investments balance. These factors make the stock appear to be a buy for long-term growth investors.
