Intuitive Surgical (ISRG 0.59%) finished last year on a lackluster note. The stock fell more than 25%. What weighed on the robotic surgery giant? Coronavirus shutdowns in China meant lower procedure volumes there, and therefore, less revenue. Rising inflation led to higher costs for Intuitive. And unfavorable currency exchanges presented another challenge.
Though these challenges remain, the market is looking at Intuitive through a brighter lens these days. Shares of the robotic surgery giant have climbed more than 15% so far this year. Now you may be wondering if this momentum can continue -- and if you should buy, sell, or hold shares of this innovative company. Let's find out.
The pandemic's impact
First, let's take a closer look at why the shares suffered last year. Since Intuitive is a healthcare company, we could expect it to hold up during times of trouble. To a certain degree, it does. But the pandemic has been a unique time: Shutdowns have resulted in cancellations of nonessential surgeries. Outside of pandemic times, this generally doesn't happen.
And these surgery cancellations have weighed on revenue. That's because hospitals order accessories and instruments from Intuitive for each surgery performed with the company's flagship Da Vinci robot. Considering the slowdown in surgeries, we could imagine hospitals reducing these orders -- and even halting plans to buy or lease a Da Vinci.
On top of this, difficulties included negative currency exchanges, and higher costs to manufacture and transport products. All of this gave investors some reasons to hold off on buying Intuitive shares.
But I've been optimistic about this stock all along: Intuitive's long-term prospects haven't changed. And these prospects are pretty bright. Here's why.
We'll start off with market share. Intuitive holds nearly 80% of the global robotic surgery market. And it's likely to remain in the lead thanks to its moat, because it's not easy to unseat such a big player. Surgical robots are million-dollar purchases, regardless of the provider, so it's unlikely a rival will be able to use price as a way of gaining market share. Also, because these robots are so expensive, hospitals that have invested in the Da Vinci probably will stick with it.
Surgeons train on the Da Vinci
Finally, surgeons around the world generally train on the Da Vinci. It's a system they know well, so they'll likely want to keep using it. Today, more than 66,000 surgeons around the world are trained to use the platform.
Meanwhile, Intuitive isn't resting on its laurels. The company continues to improve its operating system and add new procedures -- thanks to regulatory clearances -- to its Da Vinci system. In the U.S., the multiport platform currently includes six surgical categories and more than 70 procedure indications. All of this means there's reason to believe Intuitive can stay at the head of the pack over time.
I also like Intuitive's business model. The company doesn't just generate revenue by selling robotic systems. It actually makes even more revenue from the sales of instruments and accessories. Of course, as mentioned earlier, this weighed on Intuitive during times of canceled surgeries.
But overall, generating the lion's share of revenue from instruments sales is positive. That's because it offers the company a regular and recurrent revenue stream. So, once Intuitive sells a platform, the revenue opportunity is just beginning.
Finally, Intuitive has shown confidence in its own business. The company has been regularly repurchasing its shares. It bought back $1 billion in common stock in the fourth quarter of last year. And it went on to buy back $350 million in the first quarter of this year.
Time to buy, sell, or hold?
So, should you buy, sell, or hold this robotic surgery powerhouse? Let's take a look at the company's valuation. Intuitive trades for 56 times forward earnings estimates. This may seem like a lot, but it's actually down from more than 72 early last year. At the same time, revenue has continued to climb:
ISRG PE Ratio (Forward) data by YCharts.
And with more than 7,700 robotic systems placed worldwide and opportunities to add new procedures, it's likely revenue will continue to rise. As mentioned, Intuitive's market leadership is another strength.
All of this means it's worth paying a premium for Intuitive. It's likely to deliver more growth over time.
I think you can guess my answer to our question by now: I wouldn't sell its shares today, even if the stock doesn't greatly extend gains in the coming months. Intuitive has what it takes to rise significantly over the long term. And that's why it's a player I would buy and hold today.
