What happened

Shares of Intuitive Surgical (ISRG -1.66%) gained 31.2% in 2018, according to data from S&P Global Market Intelligence. Another year of strong sales and earnings growth helped the surgical robotics company crush the market.

Check out the latest Intuitive Surgical earnings call transcript.

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Intuitive managed to meet or exceed earnings expectations with each of its quarterly releases last year, as adoption of its da Vinci surgical systems continued at an impressive pace and recurring-revenue from instruments and services had a positive effect on margins. The stock wasn't immune to the market volatility that hit at the end of the year, but shareholders still had plenty to cheer about in 2018.

Da Vinci surgical robot arms.

Robotic arms of a da Vinci surgical system. Image source: Intuitive Surgical. 

So what

In a year that saw many growth-dependent stocks post steep declines as investors adopted more-cautious outlooks, Intuitive Surgical continued to deliver the strong sales and earnings expansions needed to increase shareholder enthusiasm. Total procedures conducted with the company's machines climbed 20% year over year in the most recently reported quarter, surgical system shipments increased 37% to reach 231, and instrument revenue rose 21% to $486 million. 

In addition to generating recurring revenue from supplies like surgical blades and machine maintenance services, the company is transitioning da Vinci systems themselves to a recurring-revenue model by rapidly growing its operating-lease business. This lowers the barrier to entry for hospitals, helps Intuitive continue to cement its surgical systems as the industry standard, and builds a bigger sales base for instruments and services.

Now what

Intuitive Surgical trades at roughly 38 times this year's expected earnings and 13 times expected sales. Those metrics suggest that investors have lofty growth expectations, but the company enjoys an industry-leading position and looks to have a defensible moat and long runway for growth in domestic and international markets. 

Intuitive is scheduled to report fourth-quarter earnings following market close on Jan. 24. After strong performance across the first three quarters prompted it to raise targets, management expects total procedures to have increased roughly 17.5% year over year at the midpoint of its target -- up from its previous target of 16.5% annual growth.