Let's get the bullish case for Intuitive Surgical (NASDAQ:ISRG) stated right up front. The company's robotically assisted, minimally invasive surgery system has grown explosively. Fourth-quarter sales were up 60% over the comparable year-ago quarter, and operating income was up 115.6%. That's pretty impressive.

But the bear case is a simple one: The stock's price is overly inflated, and the outlook is anything but supportive of the stock's current valuation.

Overly inflated stock price
Intuitive's stock price hit an all-time high of $139.50 on Jan. 30. On Feb. 7, it closed at $100.51 -- down 27.9% in five trading days. Even after that deflation, the stock is trading for 61.3 times forward predicted earnings.

Before you think, "Oh, but it's growing its top line at 60%," take a look at the news background that led to the sell-off: Intuitive sees 2006 top-line growth of 25% to 35%. While that's certainly good, it's lower than the historical trend.

And don't think I'm being unkind by looking at top-line growth. The earnings outlook is down, too. The five analysts who follow the company expect Intuitive, which earned $1.97 in 2005 (excluding the positive impact of a deferred tax asset), to take in $1.60 in 2006, which is an 18.8% decline in net income. That works out to 61.7 times 2006 earnings, which is still pricey even after the stock's recent haircut.

The analysts' five-year earnings outlook won't warm investor hearts, either. At 25% annually, it will take a couple of years before the market multiple exits nose-bleed levels.

Do a Google search, and you'll find a number of interesting technologies being tested for robotic-assisted surgery. But the reality is that Intuitive's robotic system is approved by the Food and Drug Administration, it's expanding its product offerings, and there's no competition on the immediate horizon. Although Intuitive's annual filing with the Securities and Exchange Commission lists a number of potential competitors, only Hitachi (NYSE:HIT) has deep pockets, although it has no clear plan to enter Intuitive's market.

Ask yourself this: With such a monopoly on business, why is growth going to be only 25% to 35% in 2006? The simple answer is that there are alternatives.

The company's primary competition is existing open surgery, minimally invasive surgery, drug therapies, and emerging interventional surgical approaches. In many cases, the tried and true is formidable competition to spending the $1 million it costs just for an Intuitive robotic system. Add in the cost of supplies, and you can understand why Intuitive readily admits that its sales cycle is elongated because of the cost of its systems.

Besides competition from existing technologies, the company may face a significant headwind in a few years-- a U.S. presidential election. Reducing health-care costs will probably be a center-stage issue, and hospitals may be unwilling to make large capital expenditures in this environment.

One last thought
Intuitive was founded in 1995, and it has only 33.5 million shares outstanding. For such a young company, it's surprising to see that insiders own just 4.8% of the outstanding shares. Over the past six months, these insiders have sold 450,159 shares. That's a lot of shares, and it clearly indicates that they aren't in accumulation mode. So why should you be?

Intuitive Surgical, at its current price, is almost three times what it was 52 weeks ago. Investors saw a great opportunity and then great results. But take a look at the company's outlook for 2006. Growth is slowing. Why put your dollars in this Motley Fool Rule Breakers newsletter recommendation when there are Rule Breaker picks like online jeweler Blue Nile (NASDAQ:NILE) selling for 31.8 times expected 2006 earnings with 30% annual growth in its future, or tiny technology-venture-capital company Harris & Harris (NASDAQ:TINY) selling for 14.2 times earnings, with 30% growth ahead?

The bottom line is really very simple: Intuitive Surgical has a great product, but the stock is overpriced.

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Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Click here to see The Motley Fool's disclosure policy.