Cyberknife uses real-time X-ray images during the treatment to see a tumor’s true position, rather than relying on pre-treatment images. Its “knife” can also maneuver around healthy tissues to treat a tumor from multiple angles. Cyberknife has proven to be a popular alternative to traditional chemotherapy, which targets all cells that divide rapidly, both healthy and infected. Despite the incredible potential of its technology, Cyberknife is currently unprofitable, and reported a 30.7% year-on-year decline in revenue last year. Its profit margin also comes in at -31.6%, which makes it a highly speculative play which lacks Intuitive Surgical’s established customer base. Shares of Accuray Incorporated (NASDAQ:ARAY) fell more than 5% after Intuitive Surgical’s revenue warning.
Despite being a robotics business like Intuitive Surgical and Accuray Incorporated (NASDAQ:ARAY), MAKO Surgical Corp. (NASDAQ:MAKO) can be considered a more conservative play that also sells regular joint-specific implants for orthopedic procedures. Although MAKO Surgical Corp. (NASDAQ:MAKO) is also unprofitable, its losses have narrowed over the past five years, and its revenue has continued to rise, surging 26.3% year-on-year in the most recent quarter.
The Foolish Bottom Line
Even though Intuitive Surgical disappointed investors with its revenue warning, it remains one of the least speculative bets in the robotic surgery industry. The company is profitable, has shown robust revenue growth, and has no direct competitors to speak of.
Prospective investors should see if da Vinci can be used for a wider variety of procedures, to diversify away from the gynecological ones that have been scrutinized by some doctors. If it does so, and the macro environment remains stable, Intuitive Surgical’s core sales of da Vinci systems could pick up again, boosting revenue across its services and accessories segments.
Therefore, I believe that Intuitive Surgical could be undervalued at current levels, since it now only trades at 21 times forward earnings – its lowest P/E valuation in four years and a substantial discount from the feverish P/E of 60 it traded at a mere three years ago. Yet that doesn’t mean that there still isn’t potential downside from these levels, and it might be prudent for investors to wait for its full earnings release for more information.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Intuitive Surgical and MAKO Surgical . The Motley Fool owns shares of Intuitive Surgical. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Can This Robot Doctor Heal Itself? originally appeared on Fool.com is written by Leo Sun.
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