Intuitive Surgical (ISRG 1.94%) is a healthcare company that makes robotic-assisted surgical devices. Its da Vinci surgical systems can assist surgeons make minimally invasive and precise procedures, which can help save lives and improve outcomes for patients. There’s a lot of potential for the company to grow over the long run.
But the devices can be costly (upwards of $2 million) and many customers opt to lease them out instead. Either way, there’s a high cost of ownership, and that can be a possible impediment to the company’s long-term growth.
Another concern for investors is the valuation. Intuitive Surgical’s stock has been rallying, and it’s up around 60% over the past 12 months. And the stock wasn’t cheap to begin with. Is it too late to invest in Intuitive, or can there still be a lot more upside for investors who buy shares of the company today?
Preliminary Q4 results show strong growth for the business
Last week, Intuitive Surgical released preliminary numbers for the fourth quarter of 2024 as well as its full-year results. The numbers were impressive and gave the stock yet another boost. For the December quarter, the company is expecting to post revenue of $2.4 billion, which is an increase of 25% from the same period last year. And for the full year, revenue of $8.4 billion will come in 17% higher than the $7.1 billion Intuitive posted in 2023.
For the company, it’s an impressive performance, particularly as the pandemic disrupted its operations and weighed on its numbers, slowing its growth. But as you can see from the chart below, the business has been trending upward in recent quarters.
ISRG Operating Revenue (Quarterly YoY Growth) data by YCharts
Has Intuitive’s valuation gotten too rich?
Intuitive is a big player in the surgical robots market, which Grand View Research projects will increase at a compounded annual growth rate of 9.5% until 2030. By then, the global market will be worth $7.4 billion — up from $4.3 billion last year. The market isn’t terribly large, but there can be even more growth years and decades as healthcare technologies become more advanced.
However, there’s no denying the stock is expensive. Currently, investors are paying a price-to-earnings multiple of 95 for shares of the business. And even if you are looking at the long term, the stock’s price/earnings-growth multiple is over 4. That’s based on analyst expectations of how it will grow over the next five years, and generally if the multiple is below 1, it’s considered a cheap stock — Intuitive is nowhere near that cutoff.
Should you invest in Intuitive stock today?
At a market cap of more than $210 billion, Intuitive’s valuation is indeed rich. The good news is that although the stock isn’t cheap and has been red-hot of late, it can still have the potential to be a good long-term investment given the need for the company’s robotic devices. But investors will need to be patient, because given its inflated valuation, a lot of long-term growth is already priced into the stock right now.
Unless you’re willing to hold the stock for several years, this may not be a suitable investment for your portfolio since its gains could be limited in the short run given its hefty price tag. However, if you’re looking at the very long run (e.g., 10-plus year) — with more potential runway for the market for its devices to grow, especially if the costs come down — Intuitive can still make for a solid healthcare investment to hang on to.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.
