If you've ever had minimally invasive surgery, you may have come into contact with Intuitive Surgical's (ISRG 0.59%) flagship product: the Da Vinci robot. Surgeons worldwide use the Da Vinci for various procedures, from hernia repair to prostate surgery. In fact, Intuitive is the global robotic surgery leader, with a market share of nearly 80%.
The stock price has gained momentum this year, rising 24%, after a tough 2022. Last year, Intuitive shares slipped 26%. And headwinds like rising inflation and coronavirus disruptions in China weighed on earnings. Today, you might be wondering if this stock moving back up still represents a buying opportunity -- or if gains are limited. Before you make a move, let's consider the bear and bull cases.
The bear case
The bad news is that the challenges Intuitive faced last year may not yet be over. Higher inflation continues to weigh on companies' costs. And negative currency impact and coronavirus disruptions remain potential problems that could arise at any time. Meanwhile, the stock has climbed quite a bit. And that leaves it trading for 60 times forward earnings estimates -- its highest this year by that measure.
Some investors may view that as too expensive. And, without any major catalyst in the near term, Intuitive's share price might not continue at the pace we've seen in the first half of the year.
That said, Intuitive continues to grow its platform, gaining clearance for new surgeries. But, considering how dominant the company already is in this market, Intuitive may not deliver as much growth as a newer player.
Though I'm confident Intuitive can keep its lead in the industry, progress from rivals could still weigh on share price growth. That's because some investors may worry about competition down the road -- and avoid investing in an older, more established player like Intuitive.
The bull case
Despite headwinds, Intuitive still managed to achieve a compound annual growth rate of 15% in worldwide procedures from 2019 through last year. And in the most recent quarter, procedures increased 26% year over year. Yes, coronavirus disruptions still may arise, but, over time, general procedure trends remain positive.
Two other elements offer reasons to be confident about Intuitive. First, Intuitive's rivals will likely find it difficult to unseat the company. Surgical robots are costly investments for hospitals, which means it's unlikely they'll switch to a new one if they're satisfied with their current platform. Thus far, this has been the case for Intuitive: The number of hospitals with more than seven Intuitive platforms has steadily increased since early 2017.
Second, I like Intuitive's recurring revenue model. About 79% of Intuitive's revenue last year was recurring -- that refers to revenue from instrument and accessories sales as well as services and operational leases. Instrument and accessory sales represent $600 to $3,500 per procedure. This means that Intuitive's opportunity for growth doesn't end when it sells or leases a Da Vinci. Instead, each platform sold ensures more revenue to come.
Should you buy Intuitive?
Now let's consider whether we should follow the bears or the bulls. Indeed, Intuitive shares aren't as cheap as they were at the start of the year -- and the stock may not continue climbing at the same pace we've seen recently.
That said, if you're buying a stock for the long term -- and that's the best way to invest -- Intuitive still makes a great choice. Its dominance in the market, the likelihood of keeping that leadership, and its recurring revenue model are three key elements. They should lead to earnings growth over time. And that's likely to boost the shares over time too.
That means I'm not too concerned about paying more for the stock today than I would have a couple of months ago. It's impossible to time the market and buy a stock at its very lowest. And when you're investing for the long term, you don't have to. Thanks to the points highlighted in the bull case, investors who pick up shares of Intuitive today are still likely to win over the long haul.
