MAKO Surgical Looks Oversold

| About: MAKO Surgical (MAKO)
This article is now exclusive for PRO subscribers.

In the United States the healthcare industry has been under a lot of stress and, subsequently, a lot of change. Hopefully it's instinct for you to see that with change comes the opportunity to profit and that anyone who's anyone should be focusing on this industry right now. That's why I've been following MAKO Surgical these past couple months from a growth investor's perspective.

MAKO Surgical (MAKO) is a company that began by offering a revolutionary robotics and implant system that helps facilitate partial knee surgery in a less invasive manner than what was currently on the market. What their technology does is basically offer the opportunity for a surgeon to conduct knee surgery with less trauma and recovery time, something that has an easy and obvious selling point for investors. Recently they've expanded their product line to assist in hip-implant procedures as well, a market that is valued at around $700M to $1B depending on whose estimates you are using.

Financially, MAKO is a very sound company. Their market cap is at about a billion with no long-term debt. Quarterly revenues have been averaging around $22M this past year. While still somewhat distant from being profitable, about a -$10M net loss as of September's quarter, -$5M loss from December's, the company slid back on net profitability with a recent quarterly net loss of around $10M. As of their earnings release and this news of the recent quarter's loss MAKO lost almost 50% of its value overnight and is currently trading in the $23-$25 range. That is why we believe that it is a solid buy.

As with most growth stories this news seems to have obviously sent investors panicking and flurrying away from a solid growth stock with little fundamental changes. A quick financial analysis reveals that their loss was due to slightly less than expected revenue while most expenses stayed consistent with the past. The contrarian could always argue that this could mean the company has hit a wall and the technology simply isn't able to deeply penetrate the market but it is easy to find holes in this view. MAKO's technology has been implemented consistently across many hospitals in the US, and once implemented it is consistently being used. The increasing number of surgeries that this company has been supporting, along with their recent adjustment to market demand by also applying their technology to hip-replacement surgeries, should support demand for the company's products in the future. Additionally, their first-mover advantage against companies such as Zimmer Holdings (ZMH) and Stryker (NYSE:SYK) are very powerful from a fundamental view.

Analysts on Wall St. are also looking at the company in a newer light. Mostly pegged at 'market perform' or 'hold' before the selloff, MAKO is seeing a flurry of analyst upgrades to 'buy' and 'outperform.' With this analysis, and using GS's new revised price target of $36 per share, I believe this represents a buying opportunity for the savvy growth investor.

Disclosure: I am long MAKO.