Update: Ekso Bionics: “Make or Break” Moment
Every company reaches a “make or break” moment – meaning the precise instant in time when it will become a hero or a zero.
I’ve spent the past few days hunkered down in my office poring over reams of information, and there’s no doubt in my mind that’s where we are with Ekso Bionics Holdings Ltd. (NasdaqCM:EKSO).
The conclusion I’ve reached may surprise you.
The Wrong Perspective Could Cost You $1.38 million
Take a seat… please.
Put your cell phone aside and set down the drink in your hand. I’m going to tell you a story that upsets a lot of investors and I don’t want you to spill… or choke.
I’ve spent 35 years in global markets as a consultant, analyst, and trader, and if there’s one thing I’ve learned from evaluating thousands of companies it’s that every single one has a defining “make or break” moment.
For some, like Facebook Inc. (NasdaqGS:FB), it’s releasing a disruptive technology that catches the world by storm. For others, like Eastern Airlines, it’s the moment they close the doors forever despite having been a trailblazer. And, for still more companies, like Monster Beverage Corp. (Nasdaq:MNST) or Amazon.com Inc. (NasdaqGS:AMZN), it’s the moment where they transition from a startup to a mature player ready to dominate their industry.
It’s hard to tell which is which unless you know what to look for and how to frame what you find in terms that make sense. So, let me set the stage.
Think back to 1997.
Enamored by the prospect of making a gazillion dollars overnight because of the media circus surrounding the latest crop of “unicorns” and a bull market that’s roaring to new highs despite overwhelming odds, many investors confuse patience with genius.
Twenty years ago, Apple Inc. (NasdaqGS:AAPL) – yes, THAT Apple – was on the tail end of 18 consecutive months of financial losses. Its market share was a mere 4% of the PC market and Club Cupertino was hemorrhaging more than a $1 billion a year.
The stock had fallen more than 50% and the company’s balance sheet was so bad that to call it a “loser” would have been an insult to actual losers.
Rival PC maker CEO Michael Dell even went so far as to openly mock Apple, saying that if he ran the place he would “shut it down and give the money back to shareholders.”
Obviously, that didn’t happen.
Today, Dell is the one who’s struggling and Apple is on the verge of becoming the world’s most valuable company with a market capitalization approaching $750 billion.
Investors who stayed the course despite overwhelming odds and dim prospects 20 years ago have turned every $10,000 invested then into $1.38 million today.
It’s the stuff of legend.
Which is why you’ve got an important choice to make when it comes to Ekso.
Are You a Speculator or an Investor?
From the very first moment I walked through Ekso’s door, I knew the company was on to something special and I challenge you to think differently given what they’ve achieved by helping stroke victims and people with traumatic spinal injuries become mobile again.
Watch these two videos if you’re uncertain:
The U.S. spinal cord and stroke rehabilitation segment all by itself is a $20+ billion market; overseas applications may double that figure. More than 71.4 million steps have been taken by people who otherwise would never take one again thanks to Ekso products used in more than 130 rehabilitation centers around the world at last count.
Then, there’s the $21 billion industrial and construction industry market where EksoWorks products are helping workers achieve more with less fatigue, better quality, and fewer injuries from high-frequency, long-duration tasks.
This video from United Rental will give you a quick look at why they’ve become one of Ekso’s largest customers very quickly.
And, finally, the military robotics market may be $21.11 billion by 2020, which represents a compound growth rate of roughly 9.27% according to Marketsandmarkets.com.
Here’s a video simulating the Tactical Assault Light Operator Suit or TALOS for short. I wouldn’t want to be a bad guy when this thing comes through the door!
Ekso has just had its best quarter ever, booking $2.3 million in revenue – $573,000 of which came from the industrial market. That’s a 324% increase in 12 months for a market that literally didn’t exist a year ago. I can easily imagine a series of doubles in the next 12 months if sales continue to grow at this pace.
Further, the company has raised more than $100 million, holds 279 patents worldwide (of which 140 are issued and the rest are in prosecution or provisional), and is moving further into sales channels by leveraging early adopters like the Kessler Foundation, the Department of Veterans Affairs, and the Swiss Paraplegic Centre.
Yet, Ekso’s stock has dropped 50% over the past 18 months to $2.75, where it’s trading as I write.
So Now What?
Ekso has to put some numbers “on the board” quickly or risk the wrath of increasingly impatient investors just as Apple did 20 years ago.
I won’t mince words.
This is Ekso’s “make or break” moment. The company’s latest 10-k report suggests they have enough cash on hand to survive through the end of the third quarter.
I see three possibilities.
First, the company raises more capital, broadens marketing efforts, and continues operations. The markets recognize the progress Ekso is making as it becomes profitable. Ekso’s stock price rises accordingly as revenues begin to match expectations.
This is complicated by a shareholder base that is largely individual, short-term oriented, and fickle, as opposed to institutional, longer-term focused, and stable. I bring this up because most individuals think additional capital raises are dilutive when, in fact, companies do them all the time as a means of growing faster and more profitably than they would otherwise.
Tesla Inc. (NasdaqGS:TSLA), not coincidentally, is getting ready to do the same thing.
Second, the company sells to a much bigger player with deeper pockets that can capitalize the long-cycle sales process and development at the same time. This is a viable alternative for management and shareholders alike. It’s also very typical for growing companies with the kind of valuable intellectual property like Ekso has that just need a little “umppph.”
Google, Facebook, Amazon, Microsoft, Intel… between them they’ve probably purchased more than 100 smaller companies with attractive technology. And, that’s worked out well for long-term shareholders.
I’ve long thought that Medtronic (NYSE:MDT) would be a suitable buyer, as was the subject of unconfirmed rumors last month. However, I could also envision a defense contractor moving in simply because so much of the intellectual property could easily crossover to military applications. Or, even Google X for that matter.
Third, the company simply shuts down. Frankly, I have a hard time imagining this would happen. At this point, Ekso’s intellectual property portfolio could be worth $75 – $100 million or roughly 30-80% more than the current market capitalization at $2.75 a share. Factor in the discounted cash flow associated with existing sales channels and the combined market potential of both the medical and industrial markets and another few hundred million dollars isn’t inconceivable.
Now comes the tough part.
You’ve got to decide if you’re an investor willing to take a longer-term leap of faith based on extraordinary market potential and disruptive technology or a short-term trader willing to dance like a kite in a hurricane.
As much as I’d like to, I can’t make that decision for you because I don’t know your individual risk tolerance, nor do I know your individual investment objectives.
My preference, of course, is that you approach Ekso as an investor.
If you’re following along as directed, that means: a) limiting your investment to 2% of overall holdings to control risk, and b) making sure that Ekso is part of a larger, disciplined investment strategy like the 50-40-10 portfolio we talk about frequently. Unbelievably, it also means you think very seriously about buying more Ekso stock.
“Buy low, sell high” is how the game works, and the path to profits.
If you’re not yet fully invested – meaning that your Ekso position is less than 2% of your overall investable assets – then you can afford to “tank up” – meaning buy more shares – to the point where you reach the 2% threshold. Much the same way as dollar-cost-averaging, this actually improves your profit potential even if the company ultimately blows up.
If you’ve got more than 2% tied up in Ekso stock, then you’re overexposed and taking on too much risk. In that case, consider unloading enough shares so that the amount of money you have at risk drops back under the 2% Rule of Thumb.
And, if you’re holding Ekso shares having already converted them to a “Free Trade” early on, then you’ve got nothing to worry about and don’t have to do a thing.
I know it’s not easy; situations like this never are.
Then, again, neither was the decision facing Apple investors under very similar circumstances in 1997…
…do I hold on or buy more?
I will be with you every step of the way.
Until next time,