After Doubling Since 2019, Is Intuitive Surgical Stock Too Expensive?

Intuitive Surgical (ISRG -0.55%) stock has boomed the last couple of years. In spite of this, though, the robotic surgery leader has lots of growth left in the tank -- and it's not much more expensive than it was before doubling since 2019. In this Motley Fool Live segment from "The 5" recorded on Sept. 16, Fool.com contributors Jason Hall and Nicholas Rossolillo and Motley Fool analyst Clay Bruning discuss why it could still be a great buy.

Jason Hall: ... been on his watch-list the whole time. He says what would you advise someone like me who feels that Intuitive Surgical's already left the station looking for some other recommendations how to think about it. Obviously Bhanu, we always want to make sure we put this out there though. This is not personalized directed advice to anybody that's watching this.

But I think we can give some insight and how to think about this thing. To me, the way I think about a company like Intuitive Surgical, luckily I was part of it a long time ago and forgot about it, but now I'm looking at it. I'm like, this is a winner, it's a great company. Do I add to it? I think it's a perfect example of a company that whether you want to increase your stake or you want to just get a position that you incrementally build it out over time.

Maybe you think it's overvalued today, but this is a company that should be able to continue to grow for 20 or 30 more years. You think about all of the tailwinds behind it, you can't just anchor on the price today and the price six months or six years ago. Anchor on the fact that the billion people are added to the middle-class over the next decade. Anchor on the fact that the number of Americans alone that are going to be 65 or older and 80 older will have doubled from 2010 to 2030. Those people soak up medical healthcare dollars. The number of procedures alone that are going to need to be done are going to grow, right? Those are huge trends that can allow this business to continue to win. I know I kind of said everything, then I'll shut up. Like you said.

Clay Bruning: Just a couple of things. They actually did announce a stock split. If it's not a 1,000 dollars price tag, that is, what they're telling you, they're doing a three for one stock split on October 5th, I believe. That might make it more attractive. Although a stock split is not really going to actually change anything.

Hall: It's on the pitch up.

Bruning: Exactly. Then one other thing you hit upon it, but I think about the growth and it's a very mature business. I think they are about 25 or so years since it was originally founded or since they got the first system FDA approved. But most of the install bases are in the US, Germany, South Korea, China is growing, but they have so many more emerging markets that aren't even being penetrated right now. You think of India, you think of Latin America, there's so much room for growth at this company that yes, you're paying up, but you're paying up for a quality business that does have a lot of room to run. There is more competition coming to the market.

But when you have a company that has 20 years plus of experience, I think it's going to be pretty tough to displace that business. Especially with how sticky they are, how great they are to their customers in terms of reducing costs and whatnot. Maybe it's the stock split for you or maybe it's the international growth stock. I think this is a business worth owning. Even though I don't own it yet myself. [laughs]

Hall: We can only buy so many. We only have so many resources.

Bruning: We can't have them all.

Hall: Nick, I think sometimes it's just a matter of just getting some skin in the game. Just getting some exposure, and then over time, building out your position.

Nicholas Rossolillo: Just get started. You can buy fractional shares, perhaps depending on where your portfolio is or just buy a share to get started and add to it over time. But on the comment about price, specifically, both of you have already commented really well on the business itself and the potential it has for decades into the future. Considering a stock based on price, it's like making a decision on buying eggs without considering how many eggs you're getting. Are you getting a dozen? A dozen and a half? Are you getting like the Costco two dozen, three dozen package?

Back in early 2019, Intuitive Surgical traded for about 60 times, trailing 12-month free cash flow. The stock prices doubled since then, basically. Now it's at 75 times trailing 12-month free cash flow. That's when factoring for basically no profitability, this time last year when surgeries around the world we're just done for, while the initial wave of COVID worked its way through the world. Yes, the price is double what it was, but it's essentially when you exclude the fact that they weren't making much money last year, it's basically the same value as it was two years ago before the pandemic. I would say the price is essentially the same as it was before. I'm still a buyer.

Hall: I really like this business a lot.