Intuitive Surgical (ISRG 2.92%) is a leader in the still-emerging field of surgical robotics in healthcare. It has 11,395 of its da Vinci systems installed worldwide. That total is up 12% year over year, so the company continues to grow its business at a rapid clip. But Intuitive Surgical is only a good choice for more aggressive growth investors. Here's why and why now could be a good time to jump aboard.
Wall Street likes Intuitive Surgical
Two-thirds of the 33 analysts who cover Intuitive Surgical have it as a buy or strong buy. Only one analyst has the medical device company rated a sell, with the rest calling it a hold. The average price target is 33% above the current stock price. In other words, there's a notable upside opportunity here.
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Valuation-wise, Intuitive Surgical's price-to-sales, price-to-earnings, and price-to-book ratios are all below their five-year averages. So the stock looks cheap relative to its own history, which also hints that there could be upside opportunity in the stock.
There's just one small problem: Intuitive Surgical has a long history of being a highly valued, volatile stock.
Lots of big drawdowns
Intuitive Surgical is in the middle of a 20% drawdown, which means the stock is in its own bear market. That's a potential investment opportunity, but it has to be put into a broader context. For example, the stock has experienced at least eight drawdowns of a similar size since its initial public offering. If you can't handle that kind of volatility, you probably shouldn't own it.
Meanwhile, the discounted valuation noted above is relative to Intuitive Surgical's own history. Just to use one measure, the P/E ratio is 52x today, compared to a five-year average of 70x. It is certainly cheaper than it has been, but the stock is still richly valued, noting that the S&P 500 index (^GSPC +0.26%) has an average P/E ratio of 26x. Value investors will not be interested, and neither will dividend lovers, given that the stock doesn't pay a dividend.
Intuitive Surgical has a great business, if you can stomach owning the stock
The truth is that Intuitive Surgical continues to grow its business at a rapid clip. And that doesn't seem likely to change anytime soon. But Wall Street knows this story well by now, so it is an expensive stock. It is also prone to volatile price swings. Buying during the current drawdown could be a great investment decision, but only if you are an aggressive growth investor who has the willpower to stick around for the long term.
