Intuitive Surgical (ISRG 1.19%) stock has proven itself to be a winner for investors over time, advancing more than 700% over the past decade. This is thanks to the company's leadership in the high-growth market of robotic surgery and its ability to maintain that position and keep earnings roaring higher.
Intuitive's flagship product is the Da Vinci surgical robot, and in the latest quarter, the company reached an install base of more than 10,400 systems placed across hospitals worldwide. That's an increase of 14% from the level a year ago. In spite of these successes, though, Intuitive stock has stumbled this year, falling 13%, amid concerns that President Donald Trump's tariffs would weigh on earnings.
Is this a major concern for the stock -- or should you buy shares of Intuitive now in October, on the dip? Let's find out.
Image source: Intuitive Surgical.
The Da Vinci 5
First, a quick look at the Intuitive business so far. As mentioned, Intuitive makes the Da Vinci robot and offers a selection of four different systems suited to the varying needs of hospitals -- from a value-oriented platform to the latest release, the Da Vinci 5, the company's most advanced system yet. The Da Vinci 5 offers 150 design innovations and 10,000 times the computing power of the earlier Da Vinci, and this translates into efficiency, better analysis of surgical data, and more.
Surgeons use these systems across many common procedures, from hernia repair to hysterectomy, and the Da Vinci has long established itself as the market leader. Importantly, growth in this market may have much farther to go: At a compound annual growth rate of 17%, the worldwide surgical robots market is expected to reach more than $38 billion by 2034, according to Global Market Insights.
And the great news for Intuitive shareholders is the company may continue to dominate thanks to its solid moat, comprised of two elements. First, most surgeons train on the Da Vinci, making it a device that's familiar to them, so it's likely they'll want to continue using this platform. Second, the Da Vinci is a big investment, with a price tag of as much as $2.5 million, and that means hospitals probably will stick with the platform to amortize the investment.
Earnings growth over time
All of this has driven earnings higher over the long term, and the momentum has continued in recent times. In the latest quarter, global Da Vinci procedures rose 17%, revenue climbed 21% to $2.4 billion, and net income on a GAAP basis rose 25%.
In spite of this solid long-term performance, though, investors have worried about the potential impact of import tariffs on Intuitive, as it ships products across borders, and the company even said in its recent earnings call that future tariff levels might "have a significant incremental impact on our cost of sales."
Still, it's important to consider a few points. Intuitive's gross margin last year was 69%, and now with tariff impact it predicts a level of 66% to 67% for this year. This still represents a solid level of profitability on sales -- and the company's $9.5 billion in cash could help fund any potential shifts in manufacturing if tariff levels truly deepened, though I wouldn't expect extreme levels ahead.
On top of this, it's important to remember that Intuitive doesn't only depend on the sales or leasing of its robots. The company actually makes more of its revenue through the sales of instruments used during procedures and services to maintain the equipment -- and what's great about this is it's recurrent revenue. So, each sale of a robot represents even more revenue to come.
Today, Intuitive trades for 55x forward earnings estimates, down from more than 72x earlier this year. This company has never been dirt cheap in recent years, but it's been worth the premium thanks to its strong moat, earnings track record, and potential to keep growing over time. And that's why right now, on the dip, it makes an excellent buy.
