Intuitive Surgical, Inc. (NASDAQ:ISRG) was turned down by Jim Cramer on Mad Money on October 6, when a caller asked whether the robotic surgery company counted as a broken stock rather than a broken company.
The shares traded at around $404 on October 6, 7.82% lower over twelve months. His objection was not the company. “I like the company very much,” he said. “It’s just too expensive a stock.”
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The Objection Is a Competitor With a Bigger Balance Sheet:
Cramer named the threat directly rather than describing it. “I don’t like that particular business anymore because there’s too many companies that want to be in it, particularly Johnson and Johnson,” he said. He then explained why that matters more than usual, calling the rival “the Colossus with the AAA balance sheet.”
The figures support the description. Johnson & Johnson generated $22.23 billion of free cash flow over the past year, against revenue of $11.03 billion at Intuitive Surgical. So the competitor can spend more each year developing a rival system than the incumbent collects from selling its own.
That is the specific shape of the risk. It is not that Intuitive Surgical is weak, but that patience is cheaper for the other side. In January we ranked ten stocks for high returns. The one we put first has returned almost 30% since.
What the Incumbent Still Has:
The defense is a business with very few equals in medical devices. Gross margin is 66.68% and operating margin 33.60%, on quarterly revenue growing 18.50%. The balance sheet is the stronger point. Intuitive Surgical carries no debt at all against $5.22 billion of cash, and a current ratio of 4.96.
A company with zero borrowings is hard to force into anything by a price war, which is one way a larger rival wins. What competition reaches instead is the multiple. Cramer put the stock at “37 times earnings” and said he did not think it warranted that.
The trailing multiple is 46.38 and the forward 33.43, so his figure sits between the two measures. We named fifteen stocks built to compound for a decade. What they have in common is explained here.
The Valuation Case:
Intuitive Surgical traded at around $404 on October 6 and is worth $142.86 billion. Sustainability rests on switching costs. Hospitals train surgeons on one system and rarely retrain them, which is the moat Johnson & Johnson has to buy its way past.
On price, the premium is the whole debate. At 12.95 times sales and 7.88 times book, the stock is priced as a monopoly. Enterprise value to EBITDA of 33.13 says the same thing in a different unit. A beta of 1.46 means these shares move harder than the index. Short interest of 2.31% shows the market is not betting against the business, only hesitating over the price.
Conclusion:
Cramer is separating a good company from an expensive stock, and the figures let him. Gross margin of 66.68%, no debt at all, and quarterly revenue growing 18.50% is a strong position. However, Johnson & Johnson produces $22.23 billion of free cash flow a year against $11.03 billion of total revenue here, so it can fund a competing system out of spare cash. The number to watch is operating margin, because 33.60% is what a serious challenger would compress first.
Market Sentiment:
Intuitive Surgical, Inc. was held by 100 hedge funds with a combined stake value of about $8.04 billion at the end of Q2 2026 in the Insider Monkey database. This is down from 103 hedge fund holders with a cumulative investment value of around $8.19 billion in the previous quarter.
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This article is originally published at Insider Monkey.
