Dueling Fools: Intuitive Surgical Bear Rebuttal

My opponent's argument for this investment surprises me. While it's an excellent review of the benefits offered by the Intuitive Surgical (Nasdaq: ISRG  ) robotic system, it's short of expected growth rates and valuation metrics that investors need to consider.

Let's take a look at the new "S" model to the robotic line. At $1.53 million, its list price is $200,000 more than the current model, which will continue to be sold. For that extra money, you get fast setup, rapid instrument change, multiquadrant access, and multi-image display capabilities. It's hard to imagine a hospital making a major capital expenditure like this and not wanting the latest technology. But in the era of health-care cost containment, is the higher-priced model what hospitals are seeking?

The higher list price also makes me wonder whether the company isn't missing the long-term impact these systems have. Besides the $100,000-per-year maintenance contract, there's recurring instrument and accessory sales. Right now, that additional annual revenue adds up to $275,000 per system. That's a razor-blade business model, but the company is premium-pricing the new razor. Go figure.

The stock is trading for 18 times sales. That's rich. So are the other valuation metrics, especially for a company that's expected to grow earnings by just 25% a year. It's an interesting company, but until the stock price gets trimmed even further, the valuation is just too high.

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Wait! You're not done. This is just a quarter of the Duel! Don't miss the Bull and Bear opening arguments, as well as the Bullish rebuttal. Even when you're done, you're still not done. You canvoteand let us know who you think won this Duel.

Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Clickhereto see The Motley Fool's disclosure policy.


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