Robotic-assisted surgery is a great example of a long-term trend in the healthcare industry that growth investors may want to consider investing in. One company at the center of all that is Intuitive Surgical (ISRG 0.59%), which makes the da Vinci system. The system can make it easier for surgeons to perform operations, even complex ones, while giving them clear high-definition, 3D views.
Would investing in this business back in 2020 have been a good move for investors? Let's have a look at how the stock has performed since then and evaluate its performance against the broader market and whether it's a good investment moving forward.
How the stock has performed since 2020
On the first day of trading in 2020, Intuitive Surgical stock closed at a price of just over $199. If you were to make a $25,000 investment into the company back then, that would have been enough to allow you to acquire approximately 126 shares of the business.
Today, with the stock now worth around $329, that investment would be worth more than $41,000, for a return of around 67%. By comparison, investing the same amount of money in the S&P 500 index would have led to an investment that's now worth over $36,000, when you include dividend income, for a more modest return of 44%.
Why the stock could have done even better
Going with Intuitive Surgical's stock more than three years ago would have been a good move for investors. The company's operations have continued to grow, with sales of $6.2 billion last year, rising 39% from the $4.5 billion that Intuitive reported in 2019.
However, if not the for the pandemic and the disruptions that COVID caused for the world, the company's growth rate and its returns may have been even better. Due to the pandemic, over the past couple of years, hospitals had to postpone surgeries for the sake of being able to stay on top of rising COVID cases.
The good news is that appears to no longer be the case, with health insurers Humana and UnitedHealth Group recently warning investors that surgeries are on the rise and so will their costs. But that's good news for Intuitive Surgical, as it means more potential growth opportunities are on the horizon.
Is Intuitive Surgical's stock too expensive to buy?
This year, shares of Intuitive Surgical are up 24% as investors are clearly more bullish about its prospects. But one thing that may give investors pause about whether to invest in the healthcare stock is its valuation. At a whopping 90 times earnings, investors are paying a big premium for the company's shares, even when compared to the previous five years:
ISRG PE Ratio data by YCharts
Optimism is high for Intuitive, but whether the premium is justifiable is a valid question; the average healthcare stock trades at an earnings multiple of just 24.
Is Intuitive Surgical a buy today?
The outlook is much better for Intuitive's business now that COVID doesn't significantly weigh hospitals down anymore. And in the company's first-quarter results (which went up until the end of March), the business was still performing well, with sales of $1.7 billion rising 14% year over year.
The one concerning area is, however, the high valuation. But if you're willing to buy and hold the stock for years, it can still be a good investment right now as the company's profitability should climb in the long run. Intuitive Surgical enjoys high gross margins of around 67% and so as more revenue flows through its business, the bottom line should improve, as will the earnings multiple. Despite a seemingly high price, this can be a good stock to buy and hold long-term.
