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Independent Security Analysis. Technical Analysis. Fundamental Analysis. Watchlists. My Portfolio.

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Investor Impatience Presents High Conviction Opportunity: We Are Pounding The Table On TransEnterix

By The Wall Street Fox → Sunday, November 30, 2014
Investors are impatient. It's human nature. Humans have a constant want for instant gratification and when they don't get it, they're disappointed. Investors have a constant want for instant gratification and when they don't get it, they freak out and hit the sell button.

TransEnterix (TRXC), a company we have been following/covering/investing in heavily over the past year, is having one of these moments. We believe a panic fire sale is going on right now and it won't last forever. Investor impatience has presented a high conviction buy opportunity and we are currently pounding the table on TransEnterix because of it. Below we will attempt to clear the mud.

It doesn't get much uglier than this. On a YTD basis (left), TRXC is down ~75%. On a monthly basis (right), TRXC is down ~50%. While our entry into the security ended up being, without a doubt, premature, we remain bullish and remain buying.

It takes real skin to be invested in a developmental stage medical device company, as shown by the two charts above, and I'm reminded of this everyday when I log into my brokerage accounts. But after conducting due diligence, I'm always reminded that TransEnterix is not your run of the mill medical device company. TransEnterix has the potential to experience exploding revenue and business growth thanks to its core, upcoming product offering: The Surgibot. The video below shows you exactly what you are investing in when you purchase a share of TransEnterix.

The SurgiBot utilizes a single incision about the size of a quarter (25mm) to insert the flexible snake like arms and camera, as illustrated in the video, and conduct surgery. This results in less post operative care for the patient, less blood loss, less scars, and a speedy recovery time.

The SurgiBot will be the first product to hit the market and directly compete with Intuitive Surgical's (ISRG) da Vinci product, and once the market picks up on that, nothing will be able to hold back this stock. Keep in mind, Intuitive Surgical is worth $18.8B, TransEnterix is worth $132.6M. We see an enormous amount of potential upside for TransEnterix.

To be as confident as we are in buying TransEnterix, you really need to understand the dynamics of robotic surgery, which, thanks to Intuitive Surgical, is a booming industry. If you'd like to  learn more about the basics, read our prior reports on TransEnterix, email us for professional analyst reports from the investment banks that cover TransEnterix, or listen to the company's latest presentation at the Stifel 2014 Health Care Conference, or listen to the company's upcoming presentation at the Piper Jaffray conference on December 3rd, both of which can be accessed from the company's investor relations page found here. 

The advantages of TransEnterix's SurgiBot over Intuitive Surgical's da Vinci and Titan Medical's (TITXF) SPORT platform (expected to be FDA approved mid 2017), and other highlights, are listed below:

  • Low $500,000 initial unit cost (small hospital beds/private surgery centers can afford it)
    • Intuitive's da Vinci costs anywhere from $1.2M-$2.5M, Titan Medical price is unknown
  • Surgeon is scrubbed in and patient side, the way surgery has always been done
    • Intutive's and Titan's offering is a console based system where the surgeon is 10+ feet away from the patient and out of the sterile field. Patients and surgeons both prefer patient side operations. 
    • Dr. Juan-Carlos Verdeja, a leading U.S. surgeon said after using the SurgiBot, "SurgiBot has the opportunity to revolutionize the robotic market. The platform automates what have been manual laparoscopic tasks in meaningful ways with added strength, precision and visualization. Plus, the platform allows me to scrub in and work at the patient’s side, and maintains a tactile feel that I want as a surgeon.”
  • Surgeons have 100% tactile feedback
    • Intuitive's and Titan's offering lack any form of feedback for the surgeon. Tactile feedback is also known as touch feedback, and in surgery, it's what the surgeon feels when operating on a patient. Tactile feedback allows surgeons to feel the difference between a vein, an artery, an organ and more through vibrations that travel directly from the surgery tool to the hand of the surgeon that is holding that tool. 
    • Because Intutive and Titan's offering is a console based system 10+ feet away from the patient, they receive touch/vibrational feedback. The lack of tactile feedback has led to accidental fatal artery cuts by surgeons, which has caused a mountain of civil lawsuits to be filed against Intutive. The SurgiBot is a game-changer because the surgeon remains that tactile feedback throughout the operation.  
  • TransEnterix is able to utilize data from its predecessor, the SPIDER, to gain FDA 510(k) approval for the SurgiBot
    • TransEnterix's previous product, the SPIDER, which is a non roboticized version of the SurgiBot, has been utilized in ~4,000 general surgery operations since it received FDA and European approval in 2009/2010. TransEnterix is able to utilize the data from those 4,000 surgeries to gain approval for a multitude of surgical indications rather than conducting human trials for each surgical indication. This greatly derisks the FDA approval process for the SurgiBot.
  • The SurgiBot has a small profile and is mobile, can be moved inbetween operating rooms
    • Intutive Surgical's da Vinci has a large profile and is not easy to move in between operating rooms. The SurgiBot's small profile is ideal for small hospitals/surgery centers. Titan Medical is developing a mobile surgical platform but has yet to reveal a prototype of its product.
  • TransEnterix has strong institutional backing, large insider ownership
    • Titan Medical has zero institutional backing
The list goes on (true triangulation, motion scaling, 3D visualization, high ergonomics, advanced energy device, attractive business model/recurring revenue model, etc.). Investor presentation slides below highlight the case for TransEnterix.


Why Did TransEnterix Drop 50% In A Month?

TransEnterix released its Q3 earnings report and revealed that they were pushing back the FDA submission filing of their SurgiBot product 6 months, to mid-2015 rather than December 2014. This delay, coupled with the COO resignation, sparked a multi week panic sell off. The COO was let go for failing to meet his deadlines. He did not leave voluntarily, he was let go. CEO Todd Pope explains at the Stifel conference, ex-COO Mueller was great at the developmental side of medical devices, not so much the manufacturing side, which is where TransEnterix is at now. The departure of the COO represents a non-issue, and a more capable COO candidate should fill the position closer to SurgiBot commercialization. Institutional ownership remains unchanged following the early November announcement, and it seems to be impatient retail investors who are selling their positions, causing the steep price drop.

Another worthy note: a week after TransEnterix's delay, Titan Medical announced that they would be delaying the commercialization of their SPORT surgical platform by 18-24 months, and won't be releasing the product until mid-2017, which caused their stock price to drop as low as 50% in a mere two days. This news development may have also played part in TransEnterix's sell off, creating a spook in developmental surgical robotics companies. 

We feel that a 6 month delay does not warrant a 50% sell off and therefor, we have been pounding the table. Our own share position has nearly doubled in the past month, and we are on the verge of divesting our beloved Plug Power holdings to buy more TransEnterix for the reasons listed above. No hate on PLUG, we are still bullish there, but we are compelled to add to TRXC at these firesale prices.

Keep in mind that the SurgiBot will be submitted to the FDA in mid-2015, and the approval process takes anywhere from 6-9 months, so we are not expecting SurgiBot sales to commence until Q1 2016. 

We don't like putting all of our marbles in one stock, but at these current prices, TransEnterix is seriously tempting us to do so. We continue to have a long-term, positive bias in TransEnterix, and expect the stock to be significantly higher come SurgiBot FDA submission/approval. 

A Quick Note On Plug Power's Q3 Earnings

By The Wall Street Fox → Wednesday, November 12, 2014
Plug Power's Q3 earnings illustrate just how risky investing in small cap (especially alternative energy) names can be. While we are fortunate to have built our core position in Plug around an average of $0.55 back in August 2013, most others are not. Our entry price allows us to easily stomach volatile price movements, like today's pre-market 15% haircut. Most others cannot.

The earnings release was no doubt a miss, but, if Andy is true to his word (which most would argue that he's not), Q4 is going to be a true blow out quarter. Here's why: Andy has reaffirmed FY14 revenue guidance of $75M as recently as one month ago in mid October. He has reaffirmed this $75M number at least a dozen times this year.

If Plug Power does in fact generate $75M in revenue this year, that means Q4 revenues will have to come in at a whopping $32.3M compared to Q3's $19.9M figure.

Plug has reaffirmed FY14 bookings of $150M a number of times, as recently as mid October. Current bookings up to Q3 now stand at $112.6M, which means Plug has to generate $38M in bookings in Q4. Given the fact that order bookings are extremely lumpy at Plug, it is possible.

And given Ballard Power's Q3 conference call hint, it seems likely to happen.

Andy has been touting since last year that on an EBITDAS basis, Plug would be profitable in FY14. I am skeptical and confident that this will not be the case.

Andy signaled last quarter that the company had a single $30M booking order expected to be signed by mid September, however, the company only booked $25.6M in orders in Q3. That is a red flag and may signal that the signage of that deal has been postponed, or dropped completely. Look for more color on that during the conference call.

The big highlight in Plug's press release, to me, was that Plug Power signed a new order deal with Coca-Cola. Coca-Cola hasn't ordered any GenDrive units from Plug Power for years. Coca-Cola last ordered 37 GenDrive units from Plug back in January of 2011. So, if Plug's booking with Coca-Cola is revealed to be much larger than 37 units, it serves as validation to Plug's GenKey product offering and signals that Coca-Cola may be looking at potential multi-site deals.

Going into the earnings conference call, it is key that Andy's FY14 revenue/booking guidance remains unchanged, and any color on upcoming deals can help salvage some of today's losses.

 Technically, Plug is still in a down trend from the March high, but as long as the stock holds $4.00, it seems to be setting up for a breakout towards the end of 2014. Any large booking deal announced in Q4 can help Plug break out of the 9 month downtrend.

The hype in Plug Power is still present, as shown by this StockTwit message volume chart. Expectations are too high, and people who jumped in on expectations of an earnings run only fuel the sell off. It may take some time for Plug to recover. I'd be comfortable adding to my position in Plug once the constant pumpers who live on the Plug stream and post links to things that have nothing to do with Plug are no longer on the Plug stream.....this may take some time though.

We remain long our core 2013 position with no intentions to sell, and we are still holding Jan 2016 $5 call options, with an intention to sell into a run-up....though this has obviously been delayed after today's results.

Plug Power Deja Vu: Did Ballard Power Just Drop A Hint?

By The Wall Street Fox → Tuesday, November 11, 2014
Around this time last year, Plug Power made some big moves. The company was on the verge of being delisted by the NASDAQ after surviving a potential bankruptcy fallout. The company secured some monumental order contracts and indicated that Q4 of 2013 was going to be a blowout quarter in terms of bookings. It was. Plug Power's stock price rose from $0.50 to ~$2.00 in a months time, and the company effectively avoided a NASDAQ delisting.

Fast forward almost a full year and you're looking at a $5.00 stock, with gains of 1,000%+ in that same time frame. Now what? After months of a consolidating stock price, an end of year run may potentially be in the cards for Plug, because of, once again, a large increase in Q4 bookings.

Bookings for Plug Power are lumpy due to their size and scope and amount of time they take to close. CEO Andy Marsh hinted at a $30M order that was expected to close by mid September during the Q2 earnings call. Further more, Ballard Power hinted at a large amount of bookings for Plug around the end of 2014 in its most recent conference call. Below is an excerpt from that transcript that may spell deja vu for Plug Power and its shareholders due to a large increase in Q4 bookings.

It seems to be deja vu all over again. As more and more people get fed up with a stagnant, sideways moving stock, management may have large orders ready to be revealed towards the end of the year that may provide a boost to its stock performance. Thanks for the hint Ballard.

Technically, Plug Power is still in a downtrend from its skyrocket high of ~$11.50 back in March. A close above ~$5.30-$5.40 area is necessary for any move to take hold.

*We have a long bias in Plug Power and it's one of our top positions. Long-Term.

We Love Recurring Revenue Streams

By The Wall Street Fox → Monday, November 10, 2014
We caught the end of a clip last week that featured a top performing fund manager who described the three principles behind his investment strategy:

No harmful products (alcohol/tobacco, casino's, soda, fast food)

10X potential

Recurring revenue stream

This strategy is very simple, very straightforward, and very effective if you identify worthy candidates. The recurring revenue stream provides a platform for sustainable growth after a company experiences a 10X event, whether it be a 1000% increase in revenues, earnings, or even market cap.

We checked to see which investments in our portfolio met this criteria. We found two that did, and they just so happen to be two of our largest positions.

Plug Power (PLUG)

Plug Power does not sell harmful products, they sell the exact opposite: environmentally friendly fuel cell modules for forklifts and ground support equipment, and, in the future, fuel cell modules for transportation refrigeration units and electric vehicles (range extenders).

Plug Power has 10X potential. While the company already experienced a 10X event with the performance of its stock price over the past year, the company still can achieve 10X potential in revenues and earnings, though that will take a few years to occur, at least when looking at FY14 revenue of ~$75M. The point is: it has scalability.

Plug Power has multiple recurring revenue streams through its GenKey offering. The company generates recurring revenue from the service of GenDrives and from supplying the hydrogen fuel. Also, one can argue that PLUG will generate recurring revenue in the long term from the actual sale of their GenDrive units, given that they have an approximate lifespan of 5 years (all varies based on usage) and customers will have to replace them. The fact that Plug Power installs the hydrogen infrastructure for fuel storage and dispensing fuel makes it an extremely sticky ecosystem for customers, making it difficult for customers to not replace their GenDrive units once they break down after years of wear and tear.

TransEnterix (TRXC)

TransEnterix does not sell harmful products, they develop (and will sell in future) a surgical robot, named the SurgiBot, that utilizes a single incision the size of a quarter to conduct general abdominal surgeries. The small incision results in rapid recovery for the patient (less blood loss, less scarring), and reduces costs for hospitals (less recovery time in hospital), and the flexible instruments that are inserted through the single incision allow the surgeon to conduct a variety of surgeries with a clear, 3D vision.

TransEnterix has 10X potential, given that their FY14 revenue will be below $1M. The company needs to sell 20 SurgiBots to reach 10X revenue, and that's not including the recurring revenue streams that will be generated from each sale of a SurgiBot. The company's stock price is near its lows, and has the potential for 10X return in the long term.

TransEnterix will have two recurring revenue streams attached to the one time sale of the SurgiBot. The company will receive an annual service fee of ~$50,000 for every SurgiBot it sells, along with a $1,000-$1,500 fee for the instruments used for every surgery that is conducted. So, if a hospital utilizes the SurgiBot for 100 operations in a year, TransEnterix will generate $150,000 in recurring revenue from that single SurgiBot.

We have substantial positions in both TransEnterix and Plug Power and are holding with a very long-term view. If you'd like to learn more about both companies, we have posts under the research reports tab above.

TransEnterix May Bust A Move With Upcoming Earnings

By The Wall Street Fox → Wednesday, November 5, 2014
TransEnterix has been consolidating for more than six months, and the stock looks like it may bust a move with earnings being announced tomorrow morning. Shares are at the end of the consolidating triangle pattern highlighted below and earnings may act as a catalyst to break the stock out of its consolidation pattern.

Also, notice the accumulation/distribution in the chart below, which signals that there has been heavy accumulation on a few high volume days followed by low volume days and limited selling.

Earnings tomorrow morning won't be about the numbers, as the company is still awaiting FDA 510k approval for the SurgiBot. Earnings tomorrow will be about updates to the current timeline of commercialization for the SurgiBot and any details surrounding the roll-out of the device. Any revelation of what TransEnterix plans to do with SafeStitch Medical's assets (GERD procedure), which they have sidelined, can also act as a positive catalyst tomorrow if they are looking to sell it.

The charts above illustrate that a break out of the triangle is imminent, whether it's up or down will likely be based upon tomorrow mornings earnings conference call.

**I am invested in TransEnterix and have a long bias in the name. This is all my opinion and nothing else.

Technically Speaking: 5 Charts That Show Plug Power Looks Ready To Run

By The Wall Street Fox → Sunday, November 2, 2014
We feel Plug Power looks primed for a run, technically speaking. The stock has been in a consolidating range for six months, and with earnings just around the corner (Nov. 12th), the stock may stretch  its legs and go for a jog, as it has in the past prior to earnings.

We understand that Plug Power is a controversial, highly debated stock due to it's massive run up nearly a year ago. We will distance our selves from the fundamentals (we have a bullish bias, and remain long from Aug. 2013), and instead focus on the technicals. Let the chart do the talking.

Since we have a long term view, we will first look at a long term chart.

Here's the weekly chart. We see RSI running into resistance, and the ADL line reaching new highs. We also notice that the 100 MA is about to make a bullish cross above the 200 MA, as well as this recent week's price action reclaiming the 50 MA (currently at $4.46). If Plug breaks out of the ascending triangle, which it looks like it barely did on Friday, and if the RSI breaks above that downtrend, Plug should be ready to make a move higher.

Here is another weekly chart, but this time utilizing a log scale. The upwards trendline looks a bit more defined, and it looks like the stock will be approaching that trend line next week. We expect the trend to continue its upward slope.

Here is the daily chart, with our interpretations drawn over. A few observations. RSI looks like it just broke out from a 7 month downtrend, MACD is nearly positive, and the stock is above the ascending triangle, and is bouncing off of its long term trend line. However, the bearish "death cross" has occurred, and the stock was rejected exactly at its 50 MA on Friday, at $4.74. Two bearish moves that deserve close monitoring and tight stop losses for the squeamish.

Also, note above that PLUG has been consolidating sideways for 6 months between the $4.00-$6.00 range. Coincidentally, the first Fibonacci retracement level from the high of ~$11.50 to the following low of ~$3.80 is near that $6.00 level at ~$5.80. We feel Plug may gravitate towards its upper trading range, near the 23.6% retracement level of ~$5.80, in the short term.

This chart is a 2 hour chart, and it illustrates the importance of the current $4.75 resistance level. The 2 hour 200 MA is at precisely $4.74, as is the 50 MA on the daily. If Plug closes above $4.75, it will present an appealing risk/reward profile with a tight stop loss set for the short term traders. Also notice the commencement of the upward slope for the 20, 50, and 100 MA's.

Lastly, this chart, courtesy of Recognia, detected a bottom triangle and set its near term PT to $5.10-$5.20 on October 29. Note the steadily increasing volume for the past 5 days. That needs to continue. *Not aware of the success rate of Recognia, but thought worth putting in, to support our bullish bias.

If you'd like to read more on the fundamentals of Plug Power, check out the research article tab above. We are expecting a slight beat on Q3 earnings numbers, but believe the real factor that will determine the direction of the stock price is more details about the supposed $30M order and who it's for, as mentioned during last earnings CC, and any potential orders for GSE's which are set to roll out in Q4.

We are long term with Plug via stocks, but are holding onto options for potential short term gains.