Intuitive Surgical (NASDAQ:ISRG) and Accuray (NASDAQ:ARAY) have so much in widespread. They’re each modern medical gadget corporations. They every market their merchandise on to hospitals. They’re each leaders of their industries.
Regardless of their similarities, long-term traders have skilled wildly completely different outcomes from holding their shares. Intuitive has delivered multibagger returns for shareholders who purchased after the IPO. Accuray’s early traders have suffered a lack of greater than 75% because the firm’s public debut.
Which of those shares is the higher alternative for brand spanking new cash immediately?
The case for Accuray
Accuray’s declare to fame is inventing the CyberKnife Stereotactic Radiosurgery System. This product makes use of a laser to ship concentrated doses of radiation on to the physique to destroy cancerous tumors. This minimally invasive course of minimizes harm to wholesome cells and helps docs deal with components of the physique which can be in any other case inaccessible. Accuray additionally sells different merchandise that assist docs pinpoint the exact location of the tumor previous to initiating radiation remedy.
Whereas the corporate’s merchandise are extremely modern, they’re additionally difficult to promote. That is owed to the truth that they price tens of millions of and require hospital programs to be flush with money. On the plus aspect, the corporate has satisfied greater than 900 clients to signal on the dotted line thus far. It additionally boasts a backlog of initiatives price greater than $460 million on the finish of 2018.
These numbers are spectacular, however the firm has struggled to translate gross sales into internet earnings. It hasn’t turned a revenue in eight years. What’s extra, even when issues are going effectively, the corporate solely posts income development within the mid-single-digits.
Administration is hoping that a new product line known as Radixact will assist to kick the corporate’s development into excessive gear. Radixact presents improved imaging and movement synchronization which may assist it win over reluctant clients.
Radixact sounds thrilling, however Wall Road continues to be projecting losses and mid-single-digit income development shifting ahead. If these expectations show correct, it is likely to be arduous for traders to win. On the plus aspect, this inventory is buying and selling for lower than one occasions gross sales, so traders do not should pay as much as personal this enterprise.
The case for Intuitive Surgical
Intuitive kicked off the robotic surgical procedure motion when it launched the da Vinci system 20 years in the past. The product had loads of detractors in the beginning, however the firm has steadily received over critics within the pursuing years.
What units Intuitive aside from Accuray is its enterprise mannequin. Slightly than make all of its cash from costly one-time gross sales, Intuitive employs a razor-and-blade enterprise mannequin. The da Vinci is the razor, and the corporate’s disposable devices and equipment are the blades. Intuitive additionally makes its clients’ signal service agreements once they set up a brand new system. This mannequin explains why 70% of the corporate’s income is each high-margin and recurring, which is a potent mixture.
Intuitive continues to boast a lot of development levers that ought to be certain that its top-line development stays sturdy. The primary is its not too long ago launched da Vinci SP (Single Port) system, which allows surgical procedure to be carried out from only a single incision level. Subsequent is the corporate’s geographic growth alternative into large nations like China and India. Lastly, the corporate additionally has an extended historical past of discovering new makes use of for its robots. That helps to drive double-digit process development.
When mixed, Wall Road expects Intuitive’s income to develop within the mid-teens. That is fairly quick for such a mature enterprise.
On the flip aspect, Intuitive’s inventory is presently buying and selling for greater than 40 occasions subsequent yr’s earnings estimates, so it is doable the corporate’s valuation has gotten forward of itself.
The higher purchase
I am hopeful that Radixact helps Accuray drive the expansion it must flip to profitability, however the investor in me is aware of Intuitive Surgical is the higher purchase immediately. The corporate is very worthwhile, rising shortly, and has a enterprise mannequin designed to pump out earnings as extra surgical procedures are carried out on its merchandise. Intuitive is so flush with money that it even buys again its personal inventory regularly.
Intuitive is likely to be dear, however this Idiot (and long-term shareholder) believes the corporate is so high-quality that the valuation is warranted. That makes it the clear alternative for brand spanking new capital immediately.