This year has been a bit of a roller coaster for investors in Intuitive Surgical (ISRG -0.55%). The company responsible for manufacturing and selling the daVinci Surgical Robot has had no problem continuing to grow its business, but a number of new worries have appeared on the horizon, causing Intuitive's stock to take a long pause.
Back in July of 2011, I pledged to buy and hold $4,000 worth of Intuitive shares. Since then, the shares have appreciated to about $5,000. Although the shares were outperforming the broader market for much of the past two years, recent worries have caused it to lose ground.
ISRG Total Return Price data by YCharts.
Read below to find out what these worries are, and why I still think the stock is worth holding.
Doubters surfacing
It's tough to say when the worry-warts took over the narrative, but it likely began when famed short-seller Citron came out with a paper saying Intuitive was grossly overpriced. Though many of the assertions Citron made were overblown, one seemed to stick: that doctors were possibly not getting the type of training that they should be. This led to the FDA opening an investigation to check on these assertions.
While that investigation is ongoing, it's important to note that Intuitive just won a major court case dealing with the question of doctor training. In that case, a jury found that it was the individual surgeon, not Intutive, that was liable for complications arising from a daVinci procedure.
Adding to the negative press, a report in February by the Journal of the American Medical Association called into question whether the cost of the daVinci justified its use in hysterectomies. That concern was echoed a month later, when the president of the American Congress of Obstetricians and Gynecologists said that there were cheaper, just-as-effective techniques for hysterectomies that didn't use daVinci.
Why I'm still holding
Obviously, these are serious concerns, and those concerns are being reflected in the stock's price. At present, gynecological procedures account for about half of all daVinci procedures. A major drop-off would be serious.
But there are other considerations to remember. First and foremost is the fact that nobody is denying that using the daVinci usually allows a patient to recover and leave the hospital sooner than traditional methods allow. While doctors might care somewhat about that, patients care a lot about it, and they have been a big part in driving daVinci adoption. I don't see that changing soon.
Secondly, daVinci is more than a one-trick pony. Yes, hysterectomies are big business, but so are prostatectomies. And as Intuitive continues to grow its base of installed machines and doctors trained to use them, there will be more tinkering to see if the robot can be used in other procedures. Currently, there are experiments taking place to see if the robot could assist in operations in ranging from urological and gynecological procedures to head and neck surgery.
Trading right now for 29 times earnings, and having grown earnings per share by 31% per year for the past five years, I think shares are fairly valued, and I have no problem continuing to hold them to see what the daVinci will be capable of in the coming years.
