Defying Intuition at Intuitive Surgical

After a run-up of more than 30% in the stock price the day after its second-quarter earnings release and another 30% increase between then and its Q3 earnings release yesterday, you might guess that a pullback in Intuitive Surgical (Nasdaq: ISRG) shares was imminent. After a lights-out quarter, this is anything but the case.

Living up to its billing as a Rule Breaker, Intuitive Surgical announced a 110% increase in operating income on a 64% increase in revenue compared with the 2006 third quarter. There was indeed enthusiasm leading up to the news after the closing bell Thursday, because the stock was up 8.3% during normal trading hours and then rose by another 6.1% in after-hours trading.

This is an impressive company because it's a leader in a niche market -- surgical robotics -- and has little in the way of competition.  The company's impressive growth was driven by the sales of 63 da Vinci surgical systems, compared with 46 in the year-ago quarter. Sales of instruments and accessories, which accounted for 32% of total revenue, also grew by a healthy amount -- 71%. As the company installs more systems, that number should continue to grow.

Intuitive Surgical is certainly not a stock to bet against, having appreciated almost 500% since it was selected as a Rule Breaker in April 2005. The use of robotics in the medical field has proven to be quite lucrative. Robotics plays that continue to impress include Hansen Medical (Nasdaq: HNSN) and Stereotaxis (Nasdaq: STXS), whose stock prices are up 195% and 34%, respectively, year to date. Last month, MAKO Surgical announced its plans to go public, and that should be an IPO to watch once its shares start trading. 

Although it's not great advice in general, when it comes to Intuitive Surgical, sometimes it's best to push intuition aside in trying to predict earnings growth and the appreciation in its stock price.

For more on robotics, check out:

• Hansen Medical Enters Numbers Game
• Dueling Fools: Intuitive Surgical