Intuitive Investors Should Invest in Intuitive Surgical, Inc. (ISRG)

Fundamental Valuations

Over the past three years, gross margins have consistently come in over 70%, operating margins have exceeded 35%, while profit margins stayed above 20%. These strong margins have contributed to a steadily rising cash hoard.

ISRG Operating Margin TTM data by YCharts

While Intuitive Surgical occupies a niche market with no direct competitors, let’s see how it measures up to comparable market peers, such as MAKO Surgical Corp. (NASDAQ:MAKO), which creates robotic prosthetics, and standard medical equipment maker Boston Scientific Corporation (NYSE:BSX).

Forward P/E 5-year PEG Price to Sales (ttm) Debt-to-Equity Return on Equity (ttm) Profit Margin
MAKO Surgical Not profitable -0.59 4.68 No Debt -33.07% -30.75%
Boston Scientific 15.81 2.33 1.43 61.95 -44.65% -56.12%
Intuitive Surgical 27.75 1.81 10.53 No debt 21.09% 30.14%
Advantage Boston Scientific Intuitive Surgical Boston Scientific MAKO/
Intuitive Surgical
Intuitive Surgical Intuitive Surgical

Source:Yahoo Finance

From this comparison, we can conclude that although Boston Scientific is the most undervalued stock, but Intuitive Surgical has the most stable returns and margins, as well as the strongest potential for future growth.

Aiming for a Soft Landing

As with most growth stocks, Intuitive Surgical’s P/E and P/S ratios appear overheated, but its clean balance sheet and strong top and bottom line growth justify its higher valuation.

It’s important to remember that every growth stock must go through a transition where its P/E declines to a more sustainable level. Of course, some stocks such as Amazon.com, Inc. (NASDAQ:AMZN) grow so fast that their P/E ratios stay at extremely high levels; other companies such as Google Inc (NASDAQ:GOOG) reconcile their stock price to actual earnings so they can stably grow.

However, one fact remains constant – a decline in P/E ratio usually precedes a loss in momentum. That’s how growth stocks eventually become value stocks.

ISRG PE Ratio TTM data by YCharts

From this comparison of its P/E ratio and price change over the past five years, we can see that Intuitive Surgical’s P/E ratio stabilized in the beginning of 2011, but its price has steadily increased – which shows that the market is constantly fairly valuing the stock, despite its premium price compared to its industry peers.

The Foolish Bottom Line

Intuitive Surgical occupies an enviable position in the medical equipment market – it only makes one main product, but it has been so widely accepted and its brand so widely known that it is expanding unopposed into hospitals nationwide. The company’s incredible top and bottom line growth, coupled with strong margins, rising cash reserves and zero debt, all make Intuitive Surgical an ideal long-term investment in a technology that may become a hospital standard in the next decade.

The article Intuitive Investors Should Invest in Intuitive Surgical originally appeared on Fool.com and is written by Leo Sun.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!