Waiting for Intuitive Surgery stock (NASDAQ: ISRG) trading at a discount could prove futile. I’m usually very skeptical of large valuations, but when it comes to Intuitive Surgical, it’s quite likely that investors will always be willing to pay a premium. The market leader in robotic surgery continues to innovate and grow in a market that is still in its infancy, signaling exceptionally promising prospects ahead. Given the very likely sustainability of Intuitive’s upward momentum in this developing market, I’m bullish on the stock.
Intuitive’s Growth Shows No Signs of Slowing
Intuitive Surgical continues to chart an impressive growth trajectory, riding the wave of growing global adoption in the robotic surgery industry. Despite great strides made in the field over the past few decades, the industry is still in its infancy, offering vast potential for expansion. Following the industry, I see that a prominent trend toward minimally invasive procedures has gained momentum.
Essentially, hospitals are enthusiastically embracing these cutting-edge techniques, recognizing the potential for increased surgical revenues and reduced expenses through fewer complications and shorter hospital stays. At the same time, a growing number of patients are looking for a more comfortable and efficient surgical experience. Intuicia has leveraged the harmonious integration of state-of-the-art technologies with enthusiastic reception from both hospitals and patients, resulting in unparalleled success over the years.
If you go and check Intuitive’s growth metrics, the initial impression may not immediately evoke a sense of “spectacular”. To provide context, the company has maintained a compound annual growth rate of 11.5% and 8.2% in revenue and EBITDA, respectively, over the past decade. However, the real wonder lies in the ongoing success story that Intuitive has created. Embarking on a long growth journey since its inaugural sale in 1999, Intuitive stands as one of the pioneering innovators in the field of robotic surgery.
The momentum behind Intuitive’s success continues to this day. Its most recent Q3 results underscore the widespread adoption of the company’s cutting-edge systems worldwide.
The company achieved a remarkable 13% year-over-year expansion of its da Vinci Surgical Systems installed base, reaching a total of 8,285 systems. Ongoing demand from hospitals remains robust, with 312 systems placed compared to 305 in the previous year, underscoring Intuitive’s continued growth despite its seemingly mature operations. This trend reinforces my earlier observation of Intuitive’s momentum, highlighting the still early, growing industry-wide adoption of robotic surgery in healthcare.
With a record number of systems online and a rising preference among patients for minimally invasive procedures, as highlighted earlier, da Vinci procedures experienced an increase of approximately 19% worldwide. Consequently, Intuitive Surgical achieved an impressive 11% revenue increase, reaching $1.74 billion.
One-of-a-Kind Investment Case Supports Strong Valuation
Intuitive Surgical’s continued expansion, coupled with its one-of-a-kind investment proposition, continues to support the stock’s great valuation. A look at the company’s forward P/E might reveal a seemingly excessive multiple of 56.6. However, a deeper look at Intuitive’s near-monopoly in the industry provides insight into why investors are willing to pay a strong price for the stock.
Just as Intuitive Surgical has skillfully capitalized on the global growth in adoption of robotic surgery, driving its impressive and consistent growth over the decades, the market anticipates this upward trajectory to endure for the foreseeable future. This confidence is rooted in the company’s leading position within the sector, suggesting a sustained competitive advantage that positions it well for continued success in the coming years.
Another interesting factor to consider when evaluating the stock’s valuation is the company’s strong cash position. Amidst the prevailing upward trend in interest rates, the absence of long-term debt on its balance sheet shields the company from adverse effects. In addition, the large cash reserve of USD 6.5 billion not only strengthens its financial standing but also generates a growing stream of interest income.
Illustrated in the Q3 results, the company achieved an impressive $56.2 million in interest income, marking a stunning jump from the previous year’s $3.9 million. This element undeniably contributes to a more optimistic reception by investors, increasing the bullish feeling towards the stock.
Is ISRG stock a buy, according to analysts?
As for Wall Street’s view of the stock, Intuitive Surgical has a Strong Buy consensus rating based on 16 Buys and three Holds assigned in the past three months. At $333.44, the average ISRG stock forecast implies a 4.9% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell ISRG stock, the most profitable analyst covering the stock (on a one-year time frame) is Truist Financial’s Richard Newitter, with an average return of 23.36% p.a. rating and an 81% success rate. Click the image below to learn more.
The Takeaway
Overall, I would argue that waiting for a discount on Intuitive Surgery stock may be an exercise in futility. The company’s relentless innovation and dominant position in the still-infant robotic surgery market signal promising prospects. Despite seemingly modest growth metrics, Intuitive’s continued success story, reflected again in its recent Q3 results, solidifies its momentum and underscores the industry’s continued adoption of robotic surgery.
The stock’s valuation, although seemingly strong, appears to be supported by Intuitive’s unique investment case, near-monopoly status and strong financial position, which form a fairly compelling choice for long-term investors.
Disclosure
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
