Intuitive Surgical (ISRG -0.50%) hasn't been generating much growth in recent quarters. The company, which is known for its robot-assisted da Vinci surgical devices, makes for a promising long-term investment as the healthcare industry continues to evolve and become more advanced.
The problem is that in the short term, the company is facing multiple headwinds. Here are a couple of the key reasons why investors shouldn't be surprised if the healthcare stock struggles this year.
Customers are being cautious
There are concerns that a recession could be coming this year, and that has businesses being more selective about where they spend their money.
On Intuitive Surgical's most recent earnings call in January, management noted that its customers "are still relatively cautious," noting that while hospital operations are improving with respect to labor costs, they still aren't to the point where they were before the pandemic. "They are being careful from a financial perspective and they're cautious given macroeconomic uncertainty," CFO Jamie Samath said.
The problem that creates for Intuitive Surgical is that its growth rate, which hasn't been all that strong in recent quarters, could continue to be underwhelming.
ISRG Revenue (Quarterly YoY Growth) data by YCharts
While the company still reported revenue of $1.7 billion for the fourth quarter of 2022 -- up nearly 7% year over year -- that may not be sufficient to grab the attention of growth-oriented investors who may have doubts about the popularity of the company's da Vinci devices.
A company like Intuitive, which trades at around 70 times its earnings, needs to be able to at least show some strong growth. Otherwise, it could be hard to generate much excitement in the stock.
Headwinds in China for at least another quarter
Another factor that could impact its growth is the market in China, which hasn't been particularly strong of late. In addition to selling and leasing its da Vinci devices, Intuitive Surgical also makes money from the number of surgical procedures that are performed. China's restrictive COVID-19 policy negatively impacted the number of procedures that were done in the latter part of 2022. And Samath said those headwinds will also be felt "in Q1 and perhaps beyond."
Although China has abandoned its zero-COVID policy, it still presents a risk, especially if COVID case numbers increase as the year goes on and it potentially reverts back to a more restrictive position. At the very least, it suggests that the company's growth rate may not significantly improve in the near term, especially when taking into account the economic headwinds and a looming recession.
Should you invest in Intuitive Surgical's stock?
The global market for surgical robots should grow at a compound annual rate of more than 21% through 2026, according to analysts from Fortune Business Insights. So there's a significant opportunity in the long run as hospitals invest in new equipment, such as Intuitive Surgical's devices.
But investors shouldn't expect it to be a linear trajectory, especially this year, with what could prove to be a bumpy ride for Intuitive Surgical's stock. If you're comfortable with that outlook and risk, and know that 2023 could be a challenging year for the business but are prepared to hang on for at least five years, Intuitive Surgical could still be a worthwhile investment.
