Tuesday, July 10, 2012

MAKO Surgical (MAKO) - Stock Down 40% Again... Vol Remains Elevated, Management Credibility in Question?

MAKO is trading $14.91, down 39.4% with IV30™ up 1.7%. The LIVEVOL® Pro Summary is below.


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MAKO Surgical Corp. (MAKO) is a medical device company that markets its robotic arm solution and orthopedic implants for orthopedic procedures called MAKOplasty. The Company offers MAKOplasty, a surgical solution that enables orthopedic surgeons to treat patient specific, osteoarthritic disease.

I wrote about MAKO five days ago, when it triggered a vol custom scan. You can read that post here:
MAKO Surgical (MAKO) - Vol Rising, But Why?...

As a reminder of where this stock was just a few days ago, I've included the Livevol® Pro Summary from the prior post below, as well as the quick summary from the end of the last blog. The news (and move) today is a disturbing repeat of the 37% drop this stock saw less than two months ago.


"Ultimately, there's a lot of speculation with this stock -- it's small and sales are small but it is seen by some as a revolutionary firm. High vol makes sense, but I'm not sure what has caused the vol to rise so abruptly of late other than a class action lawsuit deadline. The class action surrounds the stock drop and purported misrepresentations or failures to disclose information... But I don't think that's really affecting the vol..."

Well, apparently there was a sales update due out and the vol was elevated for good reason. As I stated in the prior note, something was afoot and it wasn't a class action lawsuit. On a side note, we can likely expect further class action lawsuits from shareholders after this drop -- kinda comes with the territory.

Let's look to the Charts Tab (six months), below, and continue the analysis from five days ago. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side I've highlighted two abrupt stock drops. The first was on 5-8-2012. Here's that news snippet:

What: Shares of medical device company MAKO Surgical (Nasdaq: MAKO ) sank a staggering 35% on Tuesday after its quarterly results and outlook disappointed Wall Street.

So what: MAKO's stock has risen nicely in 2012, but lower-than-expected first-quarter sales -- $19.6 million versus the consensus of $23.7 million -- coupled with a full-year guidance cut is forcing Mr. Market to sober up quickly. While management's outlook isn't drastically lower, investors are nervous that slowing hip utilization trends set the company up for even more misses down the road.

Source: The Motley Fool via Yahoo! Finance; Why MAKO Surgical Shares Got Whacked, written by Brian D. Pacampara.

So sales estimate was missed. Then, the news today:

Mako Surgical Corp. (MAKO) fell 40 percent in New York trading after saying it expects to sell fewer RIO robotic arm orthopedic systems this year, less than forecast.


Based on results from the first six months, 42 to 48 of the systems may be sold this year, the Fort Lauderdale, Florida- based company said in a statement yesterday. The prior outlook called for sales of 52 to 58 systems, Mako said.

“I think it’s an issue of management credibility and of growth,” said Michael Matson, a New York-based analyst with Mizuho Securities USA, in a telephone interview.

Source: Bloomberg via Yahoo! Finance; Mako Surgical Plunges After Cutting Rio System Sales Forecast, written by Jeanna Smialek.

Management's credibility is certainly in question -- I agree with the quote. This was a $41 stock in mid-May and the only two news stories that drove the stock down were missed sales estimates -- one on a quarterly earnings report and the other in a sort of "half-time" update.

On the vol side we can see how the implied has been rising. I've included a vol chart with just the IV30™, to make the vol move a bit clearer.

Since mid-June, the vol is up 50%. I do note that as I'm writing this blog, the implied has actually turned negative on the day, so while the vol spiked in early morning trading (which I was going to note as odd), it has finally come in a bit. Having said that, the vol is still substantially elevated to its recent past, at just about a six month high. The option market reflects elevated risk, even as news comes out.

Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols.

The next earnings release is due out in early Aug, and we can see that even after the news has been released, the front month is still at the level of the second month. The option market reflects as much risk in the near-term as it does for the upcoming earnings release. In contrast, the Nov expiry shows much lower vol.

Finally, let's turn to the Options Tab, for completeness.

Across the top we can see the monthly vols are priced to 89.36%, 91.61% and 82.05%, respectively for Jul, Aug and Nov. Over 30,000 option contracts have already traded on total daily average volume of ~5,000, with puts trading on a ~1.7:1 ratio to calls. Ultimately, there's still elevated vol in this name, even outside of the earnings release (in Aug). The news isn't settled and neither is the vol.

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1 comment:

  1. Its great that medical devices like this could help other people with their medical condition. There was a time when these conditions cannot be treated because of lack of equipment.