If you find a solid growth stock to hold for years, it can lead to significant riches, potentially even millions, in the long run. One stock that has made investors millionaires even with just a modest $5,000 investment a couple decades ago is Intuitive Surgical (ISRG -0.50%). The stock has been a phenomenal success story -- the business has been growing fast over the years, as has the industry. Why has the stock been such a good buy, and is it too late to buy shares of the company today?
The company has helped revolutionize healthcare
Intuitive Surgical makes the da Vinci Surgical System, which uses robotics to assist physicians during surgery. By using a robotic arm, surgeons can administer operations more precisely and make the procedures less invasive, thus improving results for patients while also reducing the risk involved.
By 2003, these systems were still in their early adoption phases. The company says that by 1998, surgeons used the technology on "the world's first computer-enhanced closed chest heart surgeries." And as of the end of 2003, Intuitive Surgical had sold 210 da Vinci Surgical Systems. Nowadays, the company places hundreds of its surgical systems every quarter.
Buying into the tech early has paid off for investors -- in droves
In 2003, Intuitive reported revenue of $91.7 million, with a net loss of $9.6 million on that. The top line was up 27% from the previous year and the net loss improved by nearly 50%. Although it was growing, Intuitive's growth rate was slowing down compared to previous years. Investors would have needed to take on some risk by investing in Intuitive and believe that the company's surgical systems would rise significantly in popularity. And for those who took that leap of faith, they have amassed significant returns. Here's how a $5,000 investment in the company would have grown over the years:
ISRG Total Return Level data by YCharts.
From the above chart, we see the investment growing to a mind-boggling $1.1 million. Although that's over a 20-year time frame, it's still a hugely impressive feat. Consider that tech giant Amazon would have turned that same investment into approximately $411,000 today. And with the S&P 500, the same investment would now be worth over $34,000. Turning $5,000 into $34,000 is still a great return of around 580%, which averages out to a compound annual growth rate (CAGR) of 10% -- in line with the S&P's long-term performance.
But Intuitive's performance over the years has been so exceptional that it has vastly outperformed not only the index but also a top tech stock such as Amazon.
Investing in next-gen tech can lead to life-changing returns for investors
Robotic-assisted surgery was a new phenomenon in the early 2000s and the industry remains in its infancy. According to estimates from Fortune Business Insights, the global market for surgical robots was worth less than $1.5 billion in 2018. However, it is growing at a CAGR of over 21% and so there are some fantastic growth opportunities here for investors.
For example, today, the big buzzword is artificial intelligence (AI) with Microsoft investing billions into OpenAI and using the technology to help people automatically generate content, write code, and do analysis on various topics. Amazon and other tech companies have also gotten involved in AI and what could possibly be the next breakthrough for tech. With so many companies incorporating AI into their technologies, however, that could limit the potential returns for a business such as C3.ai, which is more of a pure play AI company.
Finding a company that has the potential to generate the type of returns Intuitive Surgical has over the past two decades can be a near impossible task, because even if you're convinced of the tech, the company may not be around for years to realize the industry's growth opportunities (and competition is a big reason). But if you are willing to take a chance on a business that is in a rapidly growing industry, the payoff can be incredible.
Should you invest in Intuitive Surgical today?
Intuitive Surgical is still an excellent investment today. The business is bigger and is now reporting some impressive profits. Last year, its net income was $1.3 billion on revenue of $6.2 billion, for a net margin of over 21%. That means its profits are likely to continue soaring as the business's top line improves, leading to a better earnings multiple.
So while its price-to-earnings multiple of 72 may seem high today, that should improve in the future. Although it's highly unlikely, you'll be able to turn a $5,000 investment into $1 million over the next two decades given that the business is worth $92 billion already today, Intuitive Surgical can still be a great investment to buy and hold right now.
