Mako: Blood Is Flowing in the Street
Florida-based medical device maker Mako Surgical announced that Mako sold nine RIO systems in the second-quarter, well below Wall Street's expectation. The sales figure for the first half of 2012, is a disappointing 15 units.
On a somewhat positive note, utilization rates are in line and suggest doctor acceptance of the value provided. The company's proprietary MAKOplasty procedures for second quarter rose 66% year over year for a total of 2,590. For the first six months of 2012, a total of 4,887 procedures were performed, a 71% increase year over year.
A best-case scenario is a delay in sales until later this year, but it doesn't appear to be the case as Mako has adjusted 2012 anticipated sales from 52 to 58 systems down to 42 to 48 RIO systems.
Based on my experience with gap downs following disappointing sales similar to MAKO's, the odds favor greater downside with Wednesday or Thursday marking the short-term low. After a bounce, expect further downside pressure. It's not quite time to wish for a price above the previous closing of $20, but MAKO does have strong support near $14.
Friday or early next week will likely find bargain hunters picking up shares cheap to flip over. If Thursday appears to be closing below Wednesday's low, I may join with the bargain hunters for a quick one night stand.
MAKO Surgical was downgraded to Neutral from Buy at Summer Street. Michael Matson, a New York-based analyst with Mizuho Securities USA has a current price target of $15. I believe Michael is optimistic to believe Mako will move higher and stay above $15 anytime soon.
Bargain hunters and short sellers covering positions could push the price up about 20% in relation to the gap down price. Looking at the chart, I expect short-term resistance near $15.
Round numbers often attract like a price magnet and repel, causing a bounce. Expect a lot of volume to trade near $15 a share today, but also be prepared for a closing under the opening price, and more than a 50% chance of a close under the open. Short interest is a massive 50% of the float. There is a reason why short sellers are considered the smart money and nothing demonstrates it like Mako.
If you are looking for Tuesday's drop to signal a short term buying opportunity, you are likely going to find the end of the day Wednesday or Thursday better than Tuesday.