Intuitive Surgical (NASDAQ: ISRG) is buoyant on Wednesday after the robotic healthcare specialist dropped a strong quarterly earnings update.
But is ISRG stock a good investment?
What is Intuitive Surgical?
Intuitive Surgical develops, manufactures and markets products that enable physicians and healthcare providers to enhance the quality of and access to minimally invasive care in the United States and internationally.
The company offers the da Vinci Surgical System to enable complex surgery using a minimally invasive approach. Additionally, it offers the Ion endoluminal system, which extends its commercial offerings beyond surgery into diagnostic procedures enabling minimally invasive biopsies in the lung.
Intuitive Surgical also provides a suite of stapling, energy and core instrumentation for its surgical systems, as well as progressive learning pathways to support the use of its technology. Further services include support, installation, repair and maintenance.
The company was incorporated in 1995 and is headquartered in Sunnyvale, California.
How Does Intuitive Surgical Make Money?
The company makes money by selling or leasing its robotic surgery solutions and disposable accessories. These disposable accessories mean high procedure volume from physicians Intuitive Surgical’s tech is important for the business, as it will necessitate further purchases.
ISRG Q3 Earnings
The company’s third quarter earnings showed an 11% increase in total revenue to $1.56bn, with this rise being driven by growth in da Vinci procedure volume. However, the impact of this was partially offset by a decline in system placements.
Net income attributable to the company came in at $324.0m, up from $307.8m in the same period 12 months prior. Total operating expenses increased by 4% to $653.2m, while cost of sales edged 1% higher to $505.2m. Growth of these expenses was therefore outpaced by revenue.
These results were slightly ahead of analysts’ expectations, leading to the jump in share price seen on Wednesday. However, some investors may be concerned by a decline in system placements.
ISRG Stock Financials
The year to date has seen ISRG stock decline in price by 39%, while it has fallen by 35% across the last 12 months. This period has seen the stock hit highs of $369.50 and a low of $180.55, compared with its price at the time of writing of $218.08.
The company has a price to sales ratio of 11.67 and a price to book value of 5.65. These compare with respective industry averages of 4.3 and 3.29, which indicate that the stock could be overvalued.
ISRG Growth Potential
The company currently has a worldwide market share of around 80% in the robotic surgery field. This might make it seem like the business has limited space for growth, but it’s a field which is expected to expand significantly.
According to Grand View Research the robotic surgery market was valued at $3.6bn last year and is expected to expand with a compound annual growth rate (CAGR) of 19.3% through to 2030.
With robotic surgery allowing procedures to be carried out with more precision and control than manual alternatives, robotics could represent the future of healthcare. In its already dominant position, Intuitive Surgical looks to be in a strong position to capitalize on this.
ISRG Investment Risks
One threat to the company’s business would be another round of COVID-19 or a similar pandemic event. The company’s surgical technology is broadly used for elective surgeries, rather than treating patients with emergency respiratory conditions.
The height of the pandemic saw many non-COVID related procedures cancelled or delayed as health services across the globe struggled to deal with an influx of patients, and another similar event could consequently lead to a downturn in fortunes for Intuitive Surgical.
Additionally, the pandemic created supply chain issues for the company, which requires access to a wide range of components and materials for its systems and accessories.
Finally, inflation will be impacting hospitals and healthcare providers just as it is impacting consumers. This might make them less inclined to fork out for more expensive purchases, like Intuitive Surgical’s high end robotics, potentially ushering in a tricky period for the company.
Is ISRG Stock a Good Investment?
Intuitive Surgical has a sizeable share of the surgical robotics market, which is a market that appears to be growing at some pace. Additionally, the business is highly profitable at present, making it seem like an attractive investment prospect.
Additionally, the significant decline in share price seen across the last 12 months could make picking up ISRG at its current price a bit of a bargain.
There are still risks to investing in the business, as COVID-19 and high inflation could be problematic. Additionally, current metrics indicate that the stock could be overvalued. However, things still look positive for investors with a longer-term outlook.
Even so, investors should always consider their own appetite for risk and be aware that returns are not certain.
The 25 analysts covering ISRG stock for the Wall Street Journal have a consensus Overweight rating for the stock, with an average price target of $254.11. This compares with the stock’s price at the time of writing of $218.08.