Is Intuitive Surgical (ISRG) Below Fair Value After Strong Revenue And Procedure Growth?

Intuitive Surgical (ISRG) has been back in focus after reporting another quarter of double digit revenue and procedure growth, supported by adoption of its da Vinci 5, single port system and Ion lung biopsy platform.

Despite the strong quarterly update, Intuitive Surgical’s share price has been under pressure, with the stock down 34.09% on a year to date share price return and down 21.38% on a 1-year total shareholder return. This contrasts with its 16.27% total shareholder return over three years.

Compare Intuitive Surgical with other robotics leaders by reviewing the hand picked 38 robotics and automation stocks that are shaping the future of minimally invasive and automated procedures.

After a share price that has fallen sharply despite double digit growth in revenue and procedures, the real fork in the road for Intuitive Surgical is clear. Does this reset already reflect the risk, or is patience on price still worth considering as valuation comes under the microscope next?

Most Popular Narrative: 41.2% Undervalued

Based on the most followed narrative, Intuitive Surgical’s fair value of $630.48 sits well above the latest close of $370.42. That gap sets up a very different picture to what the recent share price suggests.

I have followed ISRG since 2003 when it was brought to the investing club I had just joined. I tried to analyze ISRG with the BetterInvesting SSG methodology that I had been introduced to and I could not get it in the buy zone. Wiser heads in the club prevailed and we started a position at around $48 a share and continued to add to the position. In 2005 ISRG was trading at over $200 a share and I was getting nervous. I convinced the club to place a trailing stop on ISRG. The price continued to increase and reached $393 a share. Then ISRG stock price started to drop it got as low as $200 a share. Our trailing stop worked like a charm we were sold out of the club position at just above $360 a share. I tried to convince the club to reinvest in ISRG at $200 a share they decided not to, but I did. I describe it as riding the lightning. I have bought and sold ISRG at least twice since then and watched the share price increase to over $1000 a share twice before doing a 3 for 1 stock split. First in 2017 and then again in 2021. Did I mention no debt?

Read the complete narrative.

Want to understand why this narrative still sees upside despite a sharp pullback and a premium profit multiple? The fair value hinges on specific expectations for revenue growth, margins and future earnings power that are baked into a detailed cash flow path, not just a simple comparison to past share price peaks.

Result: Fair Value of $630.48 (UNDERVALUED)

Have a read of the narrative in full and understand what’s behind the forecasts.

However, this upbeat Intuitive Surgical narrative still faces risks if procedure volumes soften or hospitals slow system purchases, which could pressure growth assumptions and investor confidence.

Find out about the key risks to this Intuitive Surgical narrative.

Another View: Intuitive Surgical On Earnings Multiples

The fair value of $630.48 paints Intuitive Surgical as undervalued, but the earnings multiple tells a tougher story. The current P/E of 41.7x is well above the US Medical Equipment industry at 26.6x, the peer average at 28.5x, and even the fair ratio of 34.9x. That rich premium raises a simple question for investors: Is the current discount to fair value enough to compensate for paying this much more for each dollar of earnings?

For a closer look at how that earnings premium could affect your risk and return trade off, take a moment to See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

Given the mix of concern and optimism around Intuitive Surgical, it makes sense to review the underlying data yourself and decide what really matters. To see which specific positives are drawing attention right now, take a closer look at the 3 key rewards.

Looking for more investment ideas beyond Intuitive Surgical?

If Intuitive Surgical has sharpened your focus on quality, do not stop here. Broaden your watchlist with focused stock ideas that match your style and risk comfort.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include ISRG.

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