What happened

Shares of Intuitive Surgical (ISRG -1.59%) slumped 7.4% in January, according to data from S&P Global Market Intelligence. Even with the indices soaring, some stocks have taken a turn for the worse to start 2023. And Intuitive Surgical is one of them. The robotic surgery provider posted weak fourth-quarter earnings on Jan. 24, leading investors to sell some shares.

So what

Worldwide procedures for Intuitive Surgical's Da Vinci surgery system were up 18% year over year in the period, leading to Q4 revenue growing 7% year over year to $1.66 billion. While this might seem like solid growth, it was below the expectations investors had going into the report.

Management blamed a resurgent COVID-19 in China as a headwind for procedure volumes in the region, which caused overall procedures to come in below expectations. When countries are seeing patients flood hospitals due to COVID-19 outbreaks, less important surgeries performed by Da Vinci systems are typically postponed.

Intuitive Surgical is also experiencing a slowdown in hardware deployment, placing just 369 new Da Vinci systems in Q4, down 4% from 2021. While not a huge drop, investors were likely unhappy to see it all the same. Over the long haul, investors should look for Intuitive Surgical to continue selling new Da Vinci hardware to hospitals and start growing volumes for the Ion, its new lung biopsy system.

Now what

Intuitive Surgical is vulnerable to small disappointments because of how expensive the stock is. Last year, the company generated $1.34 billion in net income. As of this writing, the stock has a market cap of $90 billion, giving it a trailing price-to-earnings ratio (P/E) of 67. This is more than 3 times the S&P 500 average of 22.1. So Intuitive Surgical will need to grow its earnings at a high rate for many years to put up positive returns for shareholders.

The company has a solid track record, with revenue up 171% in the last 10 years and, if it can invent new robotic surgery systems, a long runway ahead of it. However, investors should be cautious with this premium stock valuation. If you are thinking of buying shares on this dip, you need to be confident that Intuitive Surgical can compound its revenue and earnings for the foreseeable future.