Is it too early to properly value Titan Medical?

Recommendation: Hold Company Overview: Titan Medical (TMD.TO) is a Canadian medical company that focuses on the commercialization of computer-assisted surgical technologies for Minimally Invasive Surgery (MIS). Titan is developing their Enos system, which is a single-port surgical system that enables surgeons to perform various surgical procedures. The Enos system was designed to improve clinical performance, be easy to use, and to be more efficient in the operating room.  Titan has made licensing agreements with other companies as a source of revenue while still retaining their IP rights. Titan medical plans to deliver robotic visualization, precision and dexterity through a single incision, with their single-port Robotic System. This will help mitigate the risks of MIS and improve consistency in patient outcomes. Titan medical currently has 55 US and International patents and is in the application process for 85 more. These patents will significantly increase the barriers to entry in this field and drive away potential competitors. Titan Medical has a market cap. of $214.67M and just started making revenue this past year (FY 2020) pulling in $20M in revenue, however their EBITDA was -22.86M. Investment Information: Industry Information: Titan medical is looking to target the US market as they can efficiently provide comprehensive product training and easily adopt the product for consistent and successful surgeries. Furthermore, Titan medical can provide savings for medical providers in the states due to their lower capital equipment, service, and procedure costs. Titan also has stated that the market for robotic surgical systems is underpenetrated due to the complexity and costs associated with it. Therefore, Titan will be able to capture market share more easily given the current market conditions and establishing themselves as a top player right now will bode well in the future. Today, the robotic Surgical System market is estimated to be valued at $7.69B and is estimated to grow at a CAGR of 11.52% until 2027. At this time, the market will grow to be approximately $14.8B. Competitors: Titan medical has one large competitor in the industry, this competitor is Intuitive (Ticker: $ISRG). Intuitive has a line of robotic surgical systems that they call “da Vinci robots”. Intuitive has a market cap of $99.51B, brought in $4.5B in revenue in 2020, and had an EBITDA of 1.3B. In 2019, 1,100 da Vinci systems were placed and performed 1.2M procedures. The price of the Da Vinci systems range from $0.5-$2.5M/system. Intuitive EBITDA multiple is currently 48.7x and their forward multiple is 30.7x Investment Valuation and Plan: Since Titan Medical has a negative EBITDA and a N/A P/e ratio, a DCF model is necessary in order to put a value on Titan Medical. According to the DCF that I made with information from industry trends, yahoo finance and investor presentations, the current fair value of Titan should be $0.91, this would result in a share price decrease of 54.29%. This indicates that the current share price is overvalued based on forecasted growth and discount rates. However, I do not recommend shorting this stock for a couple of reasons. Firstly, Titan medical has high growth potential that is not reflected in the industry trends. Titan has the potential to grow at a rate much higher than 11.52% (figure used in DCF model.) Furthermore, there is not a lot of information (especially financial information) about Titan medical and they just started making revenues this past year. This lack of information and historical revenue makes it significantly more difficult to accurately value this company with a DCF model. In order for Titan medical to be at fair value in my DCF model their CAGR would need to be around 35%. Given that Titan Medical is a new company with little revenue and high growth potential, achieving this growth rate is not impossible, however it is improbable. For these reasons, I do not recommend shorting this stock, especially in the long-term. However, my advice would be to hold stock if you already own them and keep an eye out for future financial releases to get more information to build out a more accurate DCF, and potentially use multiples if their EBITDA and P/E become positive to support your DCF model. Sources:  TITAN MEDICAL INC (TMD.TO) Income Statement - Yahoo Finance Investors - Titan Medical Inc https://isrg.gcs-web.com/static-files/7b0470fb-cfd2-456a-b6eb-24af76d68f6d' Global Surgical Robots Market Report 2021: Market will Grow (globenewswire.com)

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jacksondalton18

May 4, 2021
· POSITION CLOSED

-11.06%

Position Return %

1.99

Price When Posted

-0.22

Position Return

TMD.TO

Titan Medical Inc.

1.95

-0.05
-2.50%
Current Price

Is it too early to properly value Titan Medical?

bearish

Recommendation: Hold

Company Overview:

Titan Medical (TMD.TO) is a Canadian medical company that focuses on the commercialization of computer-assisted surgical technologies for Minimally Invasive Surgery (MIS). Titan is developing their Enos system, which is a single-port surgical system that enables surgeons to perform various surgical procedures.

The Enos system was designed to improve clinical performance, be easy to use, and to be more efficient in the operating room.  Titan has made licensing agreements with other companies as a source of revenue while still retaining their IP rights.

Titan medical plans to deliver robotic visualization, precision and dexterity through a single incision, with their single-port Robotic System. This will help mitigate the risks of MIS and improve consistency in patient outcomes.

Titan medical currently has 55 US and International patents and is in the application process for 85 more. These patents will significantly increase the barriers to entry in this field and drive away potential competitors.

Titan Medical has a market cap. of $214.67M and just started making revenue this past year (FY 2020) pulling in $20M in revenue, however their EBITDA was -22.86M.

Investment Information:

Industry Information:

Titan medical is looking to target the US market as they can efficiently provide comprehensive product training and easily adopt the product for consistent and successful surgeries. Furthermore, Titan medical can provide savings for medical providers in the states due to their lower capital equipment, service, and procedure costs.

Titan also has stated that the market for robotic surgical systems is underpenetrated due to the complexity and costs associated with it. Therefore, Titan will be able to capture market share more easily given the current market conditions and establishing themselves as a top player right now will bode well in the future.

Today, the robotic Surgical System market is estimated to be valued at $7.69B and is estimated to grow at a CAGR of 11.52% until 2027. At this time, the market will grow to be approximately $14.8B.

Competitors:

Titan medical has one large competitor in the industry, this competitor is Intuitive (Ticker: $ISRG). Intuitive has a line of robotic surgical systems that they call “da Vinci robots”.

Intuitive has a market cap of $99.51B, brought in $4.5B in revenue in 2020, and had an EBITDA of 1.3B. In 2019, 1,100 da Vinci systems were placed and performed 1.2M procedures. The price of the Da Vinci systems range from $0.5-$2.5M/system.

Intuitive EBITDA multiple is currently 48.7x and their forward multiple is 30.7x

 

Investment Valuation and Plan:

Since Titan Medical has a negative EBITDA and a N/A P/e ratio, a DCF model is necessary in order to put a value on Titan Medical.

According to the DCF that I made with information from industry trends, yahoo finance and investor presentations, the current fair value of Titan should be $0.91, this would result in a share price decrease of 54.29%. This indicates that the current share price is overvalued based on forecasted growth and discount rates. However, I do not recommend shorting this stock for a couple of reasons.

Firstly, Titan medical has high growth potential that is not reflected in the industry trends. Titan has the potential to grow at a rate much higher than 11.52% (figure used in DCF model.) Furthermore, there is not a lot of information (especially financial information) about Titan medical and they just started making revenues this past year. This lack of information and historical revenue makes it significantly more difficult to accurately value this company with a DCF model.

In order for Titan medical to be at fair value in my DCF model their CAGR would need to be around 35%. Given that Titan Medical is a new company with little revenue and high growth potential, achieving this growth rate is not impossible, however it is improbable.

For these reasons, I do not recommend shorting this stock, especially in the long-term. However, my advice would be to hold stock if you already own them and keep an eye out for future financial releases to get more information to build out a more accurate DCF, and potentially use multiples if their EBITDA and P/E become positive to support your DCF model.

Sources: 

TITAN MEDICAL INC (TMD.TO) Income Statement - Yahoo Finance

Investors - Titan Medical Inc

https://isrg.gcs-web.com/static-files/7b0470fb-cfd2-456a-b6eb-24af76d68f6d'

Global Surgical Robots Market Report 2021: Market will Grow (globenewswire.com)

 

 

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0.91

Target Price

7/ 10

Confidence

1-2 Months

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