C-3PO? A wimp.
Gort? Certainly no wimp, but a bit stiff.
Robot B9? "Danger, danger!"
Bender? Canceled.
Intuitive
Surgical's (Nasdaq: ISRG) da Vinci Surgical System? Now that's a robot to know and love.
Sales at Intuitive Surgical, which is a Motley Fool Rule Breakers selection, climbed 54% in the first quarter as the company sold 19 additional systems and 19 fourth arms, and saw ongoing growth in procedure volume and instrument/accessory demand. Exiting the quarter, Intuitive Surgical has shipped 305 robot systems around the world.
While total revenue and system placements were down sequentially, that's been the case for at least three years running. When you consider the normal capital equipment budget cycle for most medical centers, it's not surprising to see an increase in fourth-quarter orders followed by a slowdown in the first quarter. As such, I wouldn't expect that pattern to change until disposable revenue becomes the majority of revenue.
For the quarter, Intuitive Surgical's gross margin improved from last year (65.5% versus 58.5%) and operating margin came in at 21.4%. Although operating and net income were well above the year-ago levels, they were down on a sequential basis along with revenue.
More important from my point of view, instrument and accessory revenue looked pretty healthy. Revenue climbed 63% for the first quarter and 11% sequentially. As instrument and accessory revenue is inextricably linked to robot usage and procedure volume, I would argue that this growth is an important affirmation that surgeons are actually using the robots more.
The da Vinci continues to be a popular option for prostatectomy procedures, and there is an ever-growing body of evidence that indicates that use of the surgical robot in such procedures significantly reduces complications and recovery time. While not yet as popular in mitral valve repair or gastric bypass as in urology, these other indications continue to grow in significance as well.
Tracking the sharp increases in revenue and profitability, Intuitive Surgical stock has been on a tear since 2003. As a result, the stock trades at an impressive 55 times trailing earnings.
It's important to note, though, that valuation is a tricky matter when you're dealing with fast-growing companies that are basically pioneering entirely new businesses. During the rapid growth years, stocks like Cisco, Microsoft, and Starbucks nearly always looked "expensive," and that's equally true for medical device companies like Medtronic (NYSE: MDT) and Stryker (NYSE: SYK) back in their younger days.
Now, I'm not saying that Intuitive Surgical is the next Microsoft, or even the next Stryker. What I am saying is that strictly applying standardized valuation philosophies to decidedly non-standard companies will pretty much always leave you watching these stocks grow from the sidelines. Intuitive may or may not be a good buy today, but the business is on fire and surgical robotics looks like it's here to stay.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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