My InvestorPlace colleague, Mark Putrino, recently pointed out that TransEnterix (NYSEARCA:TRXC), a surgical robotics company specializing in digital laparoscopy, had seen TRXC stock appreciate significantly so far in 2021.
As a result, TransEnterix director David Milne sold 147,000 shares of its stock at an average price of $2.10 per share. The shares sold were acquired at 68 cents, generating a pre-tax profit of 209%. That’s nothing to sneeze at.
However, if he had waited until the second week of February, the director would have made an extra $225,000 based on a $3.63 average share price.
Not to worry. Milne still owns 207,306 shares. Assuming these Series C warrants are exercisable at the same share price (68 cents), he’s sitting on unrealized gains of almost $612,000.
I couldn’t find any guidelines in its proxy for guidelines about the minimum amount of stock directors must own. Director Dr. William Kelley owned 19,646 as of April 9, 2020, significantly less than Milne, so I’m sure Milne would be free to exercise a large number of his warrants should he so desire.
But I digress.
Lately, it seems that investors think every penny stock with any technology angle has the makings of another GameStop (NYSE:GME) killing. That’s not so.
If you think TRXC stock has the potential to be the next Intuitive Surgical (NASDAQ:ISRG), it’s just not so. Here’s why.
TRXC Stock Is Higher Than It’s Been in 15 Months
TransEnterix last traded above $3 in November 2019, more than 15 months ago. The run-up in its share price in 2021 has enabled the company to complete two bought deals totaling $94.25 million. The company intends to use the funds for general corporate purposes and research and development.
That’s definitely good news because it’s going to need all the cash it can get its hands on to continue to grow its Senhance Surgical System in the U.S. and Europe.
In early January, the company provided investors with an update about its business. According to its press release, a total of 10 Senhance Surgical Systems were installed in 2020, with more than 1,450 procedures performed worldwide as a result of those installations.
TransEnterix expects 2020 full-year revenue of $3.1 million at the midpoint with $1.1 million of that in the fourth quarter.
How does that compare with 2019?
The company had annual sales of $8.5 million in 2019, so 2020 revenue will be 64% less than the year before, which was down from $24.1 million in 2018. In 2019, the company recorded a goodwill impairment charge of $79 million for lower sales and estimated cash flows. It also had a $7.9 million impairment charge to its in-process research and development (IPR&D).
It’s important to note that page 31 of its 2019 10-K states, “Since inception, we have been unprofitable. As of December 31, 2019, we had an accumulated deficit of $663.6 million.”
Kudos to the company for striking while the iron’s hot, but a few installs will not get it anywhere near where it has to be to make money consistently.
What About Intuitive’s Early Going?
Intuitive Surgical went public in June 2000 at $9 a share. If you bought 100 shares of its initial public offering (IPO) (a $900 investment) and still hold today — you’d have 200 shares due to a 2-for-1 split on Oct. 6, 2017 — those shares would be worth $153,854, earning you a compound annual growth rate of $28.5%.
Its sales in 1999 were $10.2 million with an operating loss of $19.5 million. Its accumulated deficit was $56.7 million. By 2004, it generated an operating profit, and by 2006 it had completely erased its accumulated deficit.
Even if you exclude the $79 million goodwill impairment TRXC took in 2019, it still generated an operating loss of $76 million that year, or almost $9 in losses for every dollar in sales.
Looking back, Intuitive Surgical’s worst year for operating losses was 2001. It lost $20.4 million on $51.7 million in sales. That’s 39 cents in losses for every dollar of sales.
The maker of da Vinci Surgical System’s pathway to profitability was on a much more certain course early in its history. TransEnterix’s pathway to profitability is far more uncertain.
Trading at 168 times its expected 2020 sales of $3.1 million, TRXC’s price-to-sales ratio is eight times more expensive than the global leader in robotics surgery.
TRXC stock might have all the potential in the world. That doesn’t mean it can hold a candle to ISRG as an investment.
It might be cheap, but the risks of owning TRXC are high. Given its run-up in 2021, only the most speculative investors should consider it.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.