In late February of this year, I discussed one of the hottest names in the burgeoning minimally invasive surgery (MIS) industry called Transenterix. However, if you do a Google search for TRXC stock, you may come across some strange results.
That’s because Transenterix changed its name recently to Asensus Surgical (NYSEAMERICAN:ASXC), reflecting management’s decision to focus on the company’s Senhance Surgical System.
Since the name change is relatively fresh – and just as importantly, readers may be searching for the old ticker symbol – I’m going to refer to the equity units as TRXC stock. Hopefully, we’ll get everyone on the same page soon enough and we can refer to Asensus by its new ticker. For now, just bear with me.
Of course, a name change is a risk, especially if you’re not a well-known entity. This isn’t Google changing its name to Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Instead, it’s an upstart trying to make waves.
While the underlying MIS industry is a relevant and fascinating one, inducing investor confusion at this stage is a curious decision.
Nevertheless, the question now is did anything change much to justify the new-look TRXC stock? While there are some nuanced details that have developed in the few short weeks since I’ve discussed Asensus, fundamentally, it still carries the same narrative.
In late February, I explained that Asensus focuses on laparoscopy, an operation performed via small incisions with the aid of a specialized camera. What sets the company apart is it leverages advanced optics and sensory technologies, superior equipment ergonomics for surgeons and next-generation robotics that function with precision and accuracy.
Plus, with the encouraging decline of novel coronavirus cases, more elective surgeries will be on the table. In theory, this should boost Asensus’ revenue potential.
Valuation Is a Huge Concern for TRXC Stock
Beyond the transition back to a somewhat normal condition, the underlying innovation of TRXC stock could be a gamechanger. As I stated last month, a single hospital stay can average nearly $16,000. Thanks to the efficiency and reduced number of hospital stays associated with MIS procedures, Asensus’ platform can promote both superior health outcomes and improved patient cost profiles.
That’s a win-win in my book. However, because Asensus is a publicly-traded company, we can’t ignore the valuation argument. Yes, TRXC stock is tied to a groundbreaking innovation so it’s going to get a rich premium, but there’s also a limit to what people will pay, especially at these lofty levels.
As InvestorPlace contributor Will Ashworth consistently pointed out, Asensus doesn’t have a clear pathway to profitability. Therefore, it’s far too early to determine TRXC stock as being the next Intuitive Surgical (NASDAQ:ISRG). Of course, that hasn’t stopped people from already believing that it is.
I think that’s both the allure and the pitfall of trading meme stocks – or stocks that have similar traits. While you can make a huge profit on some names, the narrative usually revolves around a juvenile argument about taking out the shorts.
But if you performed a more thoughtful analysis like Ashworth did, you’ll realize that Asensus “lost $19.35 for every dollar of sales in 2020, up from $9 for every dollar in sales in 2019.” Therefore, it’s “going to need every dollar of the $69 million raised from its $3-a-share bought deal at the end of January.”
Ashworth also reminds us that TRXC stock trades someplace around 300X sales, which is through the roof. In contrast, rival Intuitive Surgical trades at roughly 20X sales.
True, ISRG is priced at over $700 while you can buy TRXC at a little more than $4. But that doesn’t necessarily make TRXC the better value.
Worrying Technical Posture
Finally, in my February article about TRXC stock, I noted that it appeared shares were in the middle of forming a bearish head-and-shoulders pattern. As of this writing, it seems that the pattern is close to completion. It just needs to fall.
I want to be 100% clear: technical patterns imply a certain move but don’t guarantee it. If you’re truly gung-ho on Asensus, don’t let me stop you. After all, the underlying technology is very intriguing.
But it seems to me that the rest of the market is looking for something other than intriguing. If you want to know what I’m doing, I’m definitely staying on the sidelines.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.