Intuitive Surgical (ISRG) is set to roll out its Da Vinci 5 robot in 2025. This positions the company well for significant growth in the coming years. However, investors remain concerned about the company’s high valuation. We believe this concern isn’t justified, as the company’s position as a market leader justifies the high premium associated with its stock.
Intuitive Surgical is a pioneer in robotic-assisted surgery that stands out thanks to its advanced robotic technology, clinical data-supporting systems, and its strong focus on innovations in surgical procedures. The company was founded in 1995 and just four years later introduced its da Vinci Surgical System, which enables minimally invasive surgeries.
The da Vinci Surgical System is a state-of-the-art robotic surgical platform consisting of multiple robotic arms that hold specialized surgical instruments, which can mimic the movement of a surgeon’s hand, but with greater precision and through minimally invasive techniques. The surgeon operates from a console that provides a high-definition 3D view of the surgical site. Its ability to perform minimally invasive surgeries from cardiac valve repair to removal of the gallbladder, implies less blood loss, reduced recovery time, and fewer complications compared to traditional open surgeries.
Other products from the company include the Ion Endoluminal System, designed to enhance precision within the gastrointestinal tract; and Firefly Fluorescence Imaging, which improves visualization during surgery using fluorescence to identify tissues and blood flow.
Although the da Vinci platform is the star product of the company, its sales only represent 24% of total revenue. Instruments and accessories sales generate 60% of the total, driven by recurring revenues from procedures performed.
Intuitive Surgical’s top clients are hospitals that aim to perform minimally invasive surgeries across multiple specialties like urology, gynecology, cardiology, and gastroenterology.
My bullish thesis on the stock is based on the rollout of the Da Vinci 5 robot in the middle of next year. This is expected to be a major catalyst for the stock, with further revenue being driven by instrument replacement and trade-in opportunities.
The company’s total procedures performed with multi-port products are growing at a CAGR of 17%. This pace is unlikely to slow down, especially since the overall market of robotic-assisted surgeries is expected to continue growing at 11% in the next two years. ISRG being the market leader can easily take a big chunk of this growth.
The stock trades at a premium, but when has it not? In order to understand its dominance, consider this: companies like Medtronic and Johnson & Johnson(JNJ) continue to invest heavily in robotic-assisted surgery, a market that ISRG already dominates. It may not be a giant like JNJ but the fact that it leads the company in a niche product speaks volumes and justifies the premium.
Apart from the launch of Da Vinci 5, the company boasts enough cash to start a stock repurchase program, which should further drive up the share price. Monetizing its software products and services offers alternative sources of revenue that the company can tap into. Even at all-time highs, the company seems to be on a growth path like no other company in the sector.
Intuitive Surgical is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 67 hedge fund portfolios held ISRG at the end of the second quarter which was 79 in the previous quarter. While we acknowledge the potential of ISRG as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as ISRG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.