Intuitive Surgical (Nasdaq: ISRG), maker of the da Vinci line of surgical robots and a pick of the Motley Fool Rule Breakers service, will report second-quarter earnings Wednesday, and investors are a bit nervous coming in. Shares have been as high as about $390 each and as low as about $310 over the past several months, with many up and down movements and no real direction. The company has beaten consensus estimates for the past four quarters, confounding analysts and their belief that hospitals would cut way back on purchasing the expensive robot systems during the Great Recession. As we now appear to be coming out of that, we hope, analysts are ramping up expectations, with a call for $2.02 in earnings per share.

Coming into the quarterly earnings, what should investors do? Here's a quick look at some arguments for the three possibilities.

Buy:

  • Competition: Minimally invasive surgery is a big field, with several players selling and improving the mostly manual competitive techniques. However, the da Vinci robot is being used for more techniques than ever before, and can be expected to be adapted to an even wider range. Plus, hospitals know the value of having the device and often use the robot as a selling point for their services.
  • Growth: The metric to follow is number of procedures performed using the robot. As the number of types of procedures grows, this metric will grow exponentially, leading to both more sales of the disposable supplies and more sales of the robots, often with hospitals getting a second or third system.

Sell:

  • Valuation: At a trailing P/E of 44, there is a lot of growth baked into the price. At some point, the company won't be able to keep up, disappointing everyone.
  • World economy: As the company expands its presence abroad, and with the higher level of government coverage of health care abroad, will hospitals be able to justify the high price tag? Add in austerity measures being discussed, and the risk that there will be a cut to the ability to buy these instruments becomes too great.

Hold:

  • Balancing act: The risk of declining sales is at least as high as it was as we entered the global economic slowdown, but it's balanced by the ability the company showed growing through the recession. Which way it goes is up in the air.
  • Competition: Other companies, such as Hitachi (NYSE: HIT) and Toshiba, can also enter the robotic surgery space. But so far, such efforts are minimal, at best. Until they show up with a serious alternative, holding Intuitive Surgical isn't a bad idea.

The final call:
Personally, I'd have to go with a buy at this point, but try to get in on a dip. The company has shown strong resilience in being able to grow sales during the recession, and the benefits from using the robots -- such as less blood loss and shorter hospital stays -- are tempting to governments looking to lower health-care costs. As more procedures are used, the company will do nothing but grow. Plus, its growth is not as tied to people getting older, like medical device makers Stryker (NYSE: SYK) and Medtronic (NYSE: MDT) are, which depend more on problems with aging such as replacement joints and stents. An investment, even at this apparently high price, could pay off handsomely down the road.