Intuitive Surgical, Inc. (NASDAQ:ISRG) shareholders have plenty of reasons to enjoy a happy holiday season. The stock is at an all-time high. Intuitive Surgical is on track to generate $3 billion or more in revenue this year, which is better than ever before. Earnings for the robotic surgical system maker should also reach unprecedented levels in 2017.
Unless something crazy happens over the next few weeks, 2017 should wind up as Intuitive Surgical's best year yet in many respects. But could 2018 be even better?
In several of the most important metrics for any company, 2018 is highly likely to be a record year for Intuitive Surgical. Let's start at the top, or at least the top line: There's no reason to expect that the company won't generate more revenue next year than it will in 2017.
It's important to understand exactly how Intuitive Surgical makes its money. Yes, sales of the company's da Vinci robotic surgical systems are important. However, system sales make up less than one-third of total revenue. Over 70% of Intuitive Surgical's revenue comes from recurring sources, including instrument and accessory sales and services. You can pretty much count on this recurring revenue stream increasing in 2018, thanks to more da Vinci systems in use and more procedures being performed than ever before.
Of course, a big drop in da Vinci system sales could conceivably result in Intuitive Surgical posting lower revenue next year than it will in 2017. The chances of that happening seem pretty slim, though. In fact, the most pessimistic Wall Street analyst predicts that the company will generate revenue of $3.25 billion, higher than what Intuitive Surgical has made in any previous year.
What about the bottom line? Intuitive Surgical should be in good position to have its best year ever for earnings, also. The company's net income has grown at a faster rate than its revenue has in recent years. Analysts expect Intuitive Surgical to hit all-time high earnings levels in 2018.
Don't count on it
Although Intuitive Surgical probably will make higher revenue and earnings in 2018 than ever before, I wouldn't necessarily count on the stock having its best year yet. The problem is that the bar is really high for the stock to have its best-ever performance.
Remember, Intuitive Surgical's share price is up more than 90% so far this year. In 2009, the stock soared by nearly 139%. Five years earlier, it jumped 134%. But those weren't the best times for Intuitive Surgical stock. In 2005, shares flew 193% higher. And in 2007, Intuitive Surgical stock skyrocketed nearly 237% higher. It's hard to top those kind of gains.
Don't get me wrong, though. I think Intuitive Surgical's shareholders will be happy campers in 2018, just as they are this year. The company is in great shape. It should also still enjoy a virtual monopoly. Although Medtronic (NYSE:MDT) plans to launch a system that will compete against da Vinci next year, the medical device company's executives have stated that they don't expect any material revenue until 2019. Tiny TransEnterix (NYSEMKT:TRXC) recently won U.S. approval for its Senhance surgical robot system, but the company's CEO said he doesn't plan to compete head-to-head against Intuitive Surgical.
A year is too short
My prediction is that 2018 will be Intuitive Surgical's best year yet in several ways. However, I also think it doesn't really matter whether it happens or doesn't. A year is too short of a time frame to evaluate a company. What's important is how the business (and stock) perform over the long run.
I have written before about the long-term trend that makes Intuitive Surgical stock an awesome buy. What is that trend? People are aging. As baby boomers age, more men will require radical prostatectomies -- the second-highest procedure by volume currently performed using da Vinci. As millennials age, more women will need hysterectomies. The average age for women having a hysterectomy is 42. And that's the top procedure for da Vinci.
Aging demographics is just one factor that should drive Intuitive Surgical's growth. There are significant opportunities for the company to expand into new surgical procedures and sell more systems outside of the U.S.
Yes, Intuitive Surgical will face more competition in the future than it does now. Medtronic will be a formidable rival at some point. TransEnterix's Senhance system will probably compete against da Vinci sooner or later. Others will likely follow. However, I think the market will be big enough to support multiple players. I also think Intuitive Surgical's huge head start and continued innovation will allow it to hold its own against new rivals.
Instead of asking whether or not 2018 will be Intuitive Surgical's best year yet, perhaps the better question is if the next 10 years will be the company's best decade yet. My hunch is that it will be.
Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Intuitive Surgical. The Motley Fool owns shares of Medtronic. The Motley Fool has a disclosure policy.