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.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

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!