Motley Fool: MAKO’s growth sends positive signals
If you’re an aggressive investor willing to take on some risk, consider MAKO Surgical (Nasdaq: MAKO). It makes robotic surgical equipment, and its RIO system is accelerating sales while its MAKOplasty procedures performed for minimally invasive knee surgery are taking off.
MAKO earns revenue every step of the way. The system itself generates sales, including installation and training, while MAKO also sells implants and disposable products used in the procedures and derives more revenue from warranty and maintenance services. The procedures and services revenue is recurring, and is making up more and more of overall revenue lately (49 percent last quarter, up from 45 percent a year ago).
MAKOplasty procedures performed have leapt 487 percent since the first quarter of 2009. The commercial installed base of RIO systems has grown from 20 to 86 since 2009. Profit margins have been growing, too.
MAKO hasn’t turned its red ink to black quite yet, and last quarter’s $18.6 million in revenue – an 81.2 percent increase – resulted in a $9.9 million net loss.
MAKO is still a very small company, with a market cap of only $1.5 billion. It’s competing against much larger rivals, one of which might eventually try to buy it. As long as MAKO keeps growing, revenue will take care of itself and net profitability will follow.
Ask the Fool
Q: A company I’m invested in was recently accused of “stuffing the channel.” What does that mean? – A.K., Kankakee, Ill.
A: Channel-stuffing involves a company shipping inventory ahead of schedule, filling its distribution channels with more product than is needed. Since companies often record sales as soon as they ship products, channel-stuffing can make it appear that business is booming. But if many of the products are not sold, they may end up returned to the manufacturer. So sales already claimed may never occur.
To sniff out channel-stuffing, see if a company’s accounts receivable is growing faster than sales. If it is, that’s a red flag. Alternatively, calculate its “days sales outstanding” (DSO). Simply divide accounts receivable by sales and then multiply what you get by the number of days in the period. This reveals how many days’ worth of sales is represented by the current accounts receivable. Between 30 and 45 days is typical.
A company with a low DSO is getting its cash back quicker and, ideally, putting it immediately to use, getting an edge on the competition. Rising numbers can signify channel-stuffing. This doesn’t work for all companies, though. Restaurants and other cash-based businesses, for example, aren’t going to have much, if any, receivables.
My dumbest investment
I purchased $10,000 worth of shares in the telecommunications company MCI. It supposedly went broke and I received 3 cents per share while the company did some legal tricks and went back into business. – T.A., online
The Fool responds: That stings, but it’s a common occurrence when a company enters Chapter 11 bankruptcy protection, puts together a reorganization plan and emerges as a new company.
Whatever assets the company had are distributed, with creditors and others standing near the front of the line. Common stockholders are usually last in line and tend to get very little, if anything. The company issues new shares, canceling and replacing the old shares.
If you’re ever invested in a company headed for bankruptcy, it’s smart to sell your shares before they become totally worthless. And don’t buy, thinking the company will re-emerge – when it does, it will probably be with new stock.