Imagine you've gone back in time 10 years, to April 2009. Two-thirds of Intuitive Surgical's (ISRG -2.38%) market cap has been wiped off the map in the previous 12 months. Do you buy the stock or stay away?
Anyone who knows much about the robotic surgical systems maker would eagerly grab the opportunity to buy up shares of Intuitive Surgical. Despite a few ups and downs along the way, the stock skyrocketed more than 1,600% over the 10 years after April 2009.
Now back to the present. Intuitive Surgical isn't downtrodden at all. The stock is up 40% over the past 12 months. Do you buy the stock or stay away?
In my view, the answer is again to eagerly grab the opportunity to buy up shares. I think that's the case because of to what I think the answer to another question is: Where will Intuitive Surgical be in 10 years?
An expanding market
It seems a near certainty that the market for robotic surgical systems will be significantly larger in 2029 than it is today. There are three key reasons why.
First, and probably most importantly, demographic trends should boost the overall market for robotic surgery. The aging of the baby boomer generation will cause ripples throughout society, but especially in healthcare. It's no secret that older individuals tend to require more healthcare services, including surgeries. And many of the types of surgeries that are likely to increase in volume as Americans age are top candidates for Intuitive's da Vinci system.
There's also another twist to the demographic trends. Millennials -- an even larger group than the baby boomers -- are also aging. Within the next 10 years, many female millennials will be in their early 40s. Why does that matter? Because that's the most common age range for hysterectomies, which happens to be one of the most frequently performed surgical procedures using da Vinci.
The second likely reason the robotic surgical systems market will expand is that there are significant international growth opportunities. Robotic surgery hasn't been limited exclusively to the U.S., but there are many more systems installed in the U.S. than in other countries. That's the case even though there are lot more patients outside the U.S. than in it who could benefit from minimally invasive surgery. Also, many other countries are experiencing similar demographic trends as the United States.
Third, more types of procedures will be performed using robotic surgical assistance 10 years from now than today. Intuitive Surgical has made significant advances over the last several years, and there's no reason to think more advances won't be made in the coming years to expand the types of procedures for which robotic surgery is applicable.
Still the one to beat
Another near certainty, though, is that there will be more competition for Intuitive Surgical over the next 10 years. The company will face both big and small rivals hoping to gain market share.
Some of those potential rivals don't currently compete head-to-head against Intuitive. For example, TransEnterix won FDA approval for its Senhance robotic surgery system in late 2017. While the newer system could go up against da Vinci in the future, TransEnterix's strategy, for now, is to carve out its own niche market.
Others, however, will present a challenge to Intuitive Surgical. Medtronic plans to launch its own robotic surgical system that will target the same customers that Intuitive does. The medical-device giant already has a presence in the market thanks to its acquisition of Mazor Robotics.
Johnson & Johnson is another potentially formidable competitor. The company announced in February that it's acquiring Auris Health, whose founder, Fred Moll, also initially founded Intuitive Surgical. Auris Health's Monarch system competes against Intuitive's new ION system in minimally invasive lung biopsy. In addition, J&J is working with Alphabet subsidiary Verily in a joint venture, Verb Surgical, to develop robotic surgery technology.
But while Intuitive Surgical will no doubt have more competition in 2029, I think the company will still be the one to beat. It will be very difficult for newer rivals to take customers away from Intuitive. These customers have a significant financial incentive to maximize their return on investment for their purchases of the da Vinci system. I think Intuitive's long track record will also give it a sizable competitive advantage.
Intuitive Surgical faces risks that could dramatically affect its future fortunes. Perhaps the greatest uncertainty is what might happen with the U.S. healthcare system. A move to a single-payer system could adversely affect many healthcare companies, including Intuitive Surgical.
However, my prediction is that Intuitive will benefit from the overall growth in the robotic surgical systems market. I think technology will advance in ways that we can't envision right now. While I wouldn't count on seeing Intuitive Surgical's share price soar 1,600% over the next 10 years, I fully expect that investors in 2029 would love to be able to go back in time and buy the stock at today's price.