If I were to recommend any Intuitive competitor, it would be MAKO. But I won’t. The company hasn’t yet learned how to make money and its product line is limited. The company’s ability to gain market share with a lower-priced, specialized device is key to success. But there’s a natural ceiling to the orthopedic specialty, and its ability to penetrate other areas remains speculative.
Accuray Incorporated (NASDAQ:ARAY) has a robot called CyberKnife that does cancer surgery. The company looked like a winner at the start of 2012, but results since have been disappointing, with falling margins and lower sales.
The company raised substantial debt early this year to take another run at the market, becoming cash flow positive in the first quarter of the year. The biggest problem is a recall, in April, meant to “repair a defect” in the product.
I don’t like recalls. I think Accuray’s product line is too limited to compete in the long run, absent a buy-out by a large player trying to enter this market. Right now, it’s fighting for its life. You can speculate on its success, but as with MAKO you’re speculating.
Margins will shrink
All of which means that the problem is a rather prosaic one. It isn’t “ObamaCare,” or else Intuitive Surgical, Inc. (NASDAQ:ISRG)’s press release would have emphasized strong results in international markets, and its sales problems would be limited to the U.S.
It’s market saturation. Having developed the robotic surgery market, Intuitive Surgical now faces the normal problems of declining margins, replacement of older equipment, and the fact that the revolution has gone by. It’s really no different from the problems at Apple or any other tech company that finds itself in a maturing market.
The fact that no one saw this coming, however, is troubling. If “ObamaCare” is really so bad for Intuitive, that’s a feature and not a bug. At some point no one can keep raising prices. Efficiency must come. The percentage of GDP devoted to health care in the U.S. has to come down from its present level of 17%, or the economy will collapse of that weight.
My Foolish take
The recent fall in Intuitive Surgical, Inc. (NASDAQ:ISRG) shares have sent its Price/Earnings (PE) multiple down to 24. That’s almost reasonable. It’s below that of Google. When everyone else is panicking, that’s a good time to buy stock in any company that is fundamentally sound.
Intuitive Surgical, Inc. (NASDAQ:ISRG) is fundamentally sound. It’s no longer a speculation. When the hangover is over, when all the crazy-eyed bulls have run from this stock in terror, buy yourself a few shares. Your patience will be rewarded.
Dana Blankenhorn has no position in any stocks mentioned. The Motley Fool recommends Intuitive Surgical and MAKO Surgical . The Motley Fool owns shares of Intuitive Surgical.
The article What Is Missed on Intuitive Surgical’s Big Miss originally appeared on Fool.com.
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