About Intuitive Surgical
Call me crazy, but I feel like robots and surgery might not mix too well.
That is, if I was going in for, say, a heart surgery, I wouldn’t feel all that comfortable with a robot anywhere close to operating while my chest was open, because all I’d be thinking about (prior to being medically sedated, obviously) is if a pair of wires cross incorrectly or unexpectedly, this robot could end my life in a matter of seconds.
I’d rather have an experienced human who spent what felt like way too much time in medical school with a handful of diplomas displayed on the walls of their office who has done this hundreds upon hundreds of times.
But maybe that’s just me.
Thankfully, upon further review of what this company does and stands for on its website, it doesn’t seem as though Intuitive is in the business of displacing human doctors and/or surgeons and ushering in robo-doctors, but rather it sells equipment that is meant to be employed during surgeries and other critical operations in order to better patient outcomes, lending a technological helping hand to those that operate on patients in a hospital or surgical center setting.
At least, that’s the case with this company for now.
With that, I certainly wouldn’t put it past this company (or others for that matter) to work feverishly to put together a line of highly technical, artificial intelligence-driven machines that could perform surgeries themselves and potentially cut hospitals millions in costs. But that’s beyond the scope of this article, again, for now.
Instead, it would be best if we spent our time focusing on this company, whether or not it can be considered recession proof and also diving into some of its core financials and other metrics that could be useful in determining whether or not its stock (NASDAQ: ISRG) is worth considering as a long-term investment.
First and foremost, do yourself a favor and check out this company’s line of products and equipment, as we think they are quite fascinating and telling of what the future holds in the surgical and general medical realm.
With respect to whether or not we view this company as being recession proof, we think it certainly is, as there is probably hardly any sort of relationship between the state of the national and/or global economy and the amount of surgeries that are occurring at any one time, which, overall, bodes well for a company such as this one.
Whether we are in a boom or bust cycle, people will more than likely still need surgeries and other operations performed on themselves and their loved ones.
With that assumed objective positive under our belts, now is a good time to discover more about this company from a more technical standpoint, namely through its financials.
Intuitive’s stock financials
First and foremost, this company’s stock (NASDAQ: ISRG) has had quite an impressive run-up between the publication of this article and, say, 2018, as its shares are up about 70%, which could just be the top of this company’s impressive run, but if the numbers are good and the valuation still remains somewhat reasonable given its growth and other factors, there might still be reason to ponder an investment in this company through its stock.
At any rate, we are talking about a $109.06 billion company with a prevailing share price of $310.41, no annually dished out dividend and an associated price-to-earnings (P/E) ratio of 78.47.
In considering this preliminary data without any further context, it can be objectively seen that Intuitive’s current share price is a bit ahead of itself given that its P/E ratio is trading at miles above the standard, fair value benchmark of 20, which, in certain cases, can be justified if a company is growing at a rapid enough rate to justify overpaying a bit for the growth that may (or may not) continue, as at least has been the case with many technology firms in past stock analysis articles.
However, if the year-over-year (YOY) revenue growth isn’t growing at a rapid rate, overvalued is just, well, overvalued.
As a brief aside, the annual dividend of $0.00 doesn’t deter us one bit, simply because this is a company apparently pioneering a very new, untapped market and thus we would hope that it would be in cash preservation mode, as it seemingly is with respect to not sucking cash out of its business by means of a dividend.
All of this being the case, it would serve us well to continue digging into (poor choice of words) Intuitive Surgical and its financials.
In that spirit, it can be found that Intuitive’s executives are stewards of a balance sheet strapped with just south of $13 billion in terms of total assets as well as around $1.9 billion in terms of total liabilities, which is nothing short of phenomenal, as this company is incredibly well capitalized with its more than sufficient aggregate asset coverage and can apparently weather any recessionary storms that are likely to come.
We are pleased to find that this company is very, very total asset-heavy, however, if we are being a bit picky, we do hope that Intuitive tacks on some debt so as to continue financing growth before other players in the broad, competitive surgery and medical equipment spaces outspend this company and with that, potentially outperform this company in what it does best.
Onto the company’s income statement, Intuitive’s total annual revenues since 2018 have seen a fairly shallow yet notable rise, starting its journey at just about $3.7 billion, rising the following year to $4.5 billion, around $4.4 billion in 2020, just north of $5.7 billion in 2021 to its latest reported figure (displayed on TD Ameritrade’s platform) of $6.2 billion in 2022.
All things considered, this recent annual revenue growth is good, but, from our perspective, not good enough to warrant paying a hefty premium for an ownership stake in the company’s stock (NASDAQ: ISRG), which isn’t to say by any stretch that Intuitive’s revenue growth has been lackluster or is not encouraging, but it is to say that there should be hardly any signs of revenues growing a bit (as opposed to a lot) year-over-year when facing the current valuation this company maintains.
Cash flow time.
With respect to the company’s cash flow statement, Intuitive Surgical’s net income and total cash from operations (also since 2018) have been stellar, consistent and positive, even amidst recent supply chain challenges and added costs likely tacked onto its business throughout recent years.
As a sort of reference, both the company’s net income and total cash from operations have remained in or ever so slightly around the $1 billion area code, implying that generating cash isn’t much of a problem for this company.
Intuitive’s stock fundamentals
Being a pioneer in a lucrative landscape such as healthcare, especially within the neck of the woods of manufacturing and selling supplemental surgical equipment has a lot of benefits, including but not limited to having an outsized trailing twelve month (TTM) net profit margin in relation to its peers.
At least, this is most definitely the case with Intuitive Surgical, as according to the figures shown on TD Ameritrade’s platform, Intuitive’s TTM net profit margin weighs in at a whopping 21.73% compared to the industry’s respective average of 4.27%, which is about as material of a difference as it gets, signifying Intuitive’s sheer prowess in the surgical equipment and technology space that is very likely tough to beat.
Additionally, as it pertains to the company’s TTM returns on assets and investment(s), Intuitive Surgical also trumps those of the industry’s listed averages, for instance, as its TTM return on assets is perched up at 10.49% to the industry’s respective average of 5.35%, indicating that this company is objectively better than its peers (on average) at generating sales through the assets it has acquired and put to work.
According to both of these metrics it can be found that Intuitive is quite an efficient company.
Should you buy Intuitive Surgical stock?
Frankly, there is a lot to like about this company as we conclude our analysis of this company and its stock (NASDAQ: ISRG).
Its balance sheet is in a splendid position, its total annual revenues have been generally rising, cash flow generation is hardly a problem, its TTM net profit margin is exceptional with respect to its peers (again, on average) and its core TTM returns on assets and investments are both greater than those of the industry’s averages as well, not to mention the fact that as more and more health ailments rear their ugly heads against humanity, there will likely be an increasing amount of organic demand for this company’s products and other offerings by hospital systems and supplemental surgical centers across the globe.
However, even with all of these current and future tailwinds, we still don’t view this as a valuation that is fair to consider paying right now, as its revenues just aren’t growing that quickly and there will more than likely be an opportunity to buy shares of this company’s stock (NASDAQ: ISRG) at a lower, more rational price in the near or intermediate future.
We just don’t feel comfortable potentially limiting our upside by this much at the moment, especially in this particular market environment.
In considering the bad and the good, we think it would make sense to offer this company’s stock a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.