By any definition, Intuitive Surgical‘s (NASDAQ:ISRG) a high-quality S&P 500 stock. We’ve got a leader in the global robotic surgery market, with high recurring revenue (84%), fat margins, strong returns on capital, and an immaculate balance sheet.
Moreover, the company’s share price has crashed roughly 41% since January. So we also have a cheaper valuation than just a few months ago.
On paper then, this looks like a no-brainer, dip-buying opportunity for my ISA. What’s not to like?
Win-win-win
As a reminder, Intuitive pioneered the soft-tissue robotic surgery space with its da Vinci machine. Through these incredible systems, surgeons can operate more dexterously, resulting in quicker patient recovery times and reduced hospital stays.
So this is about as close to a win-win situation as you can get. Patients benefit due to the minimally invasive procedures, along with hospitals. Early investors have won big too, with the share price up about 16,900% since the IPO in 2000.
Actually, I suppose this has been a win-win-win scenario!
High switching costs
There’s now a global network of more than 101,000 da Vinci-trained surgeons, with an installed base of 11,710 systems. Once a robot enters a hospital and surgeons are trained to use it, the switching costs are high.
As mentioned, the company enjoys high-margin recurring revenue. This is because hospitals buy disposable instruments and accessories to keep the robots working safely and hygienically, supporting very predictable cash flows.
Strong growth
We’re now onto the fifth generation of Intuitive’s flagship product, and 246 of the 468 da Vincis placed in the second quarter were the latest ones. Worldwide procedures grew around 15%.
Intuitive also placed 55 Ion Endoluminal Systems, a 21% increase, bringing the installed base to 1,096. Ion, which is an advanced robotic tool for lung biopsies, saw procedures rise roughly 36%.
Quarterly revenue jumped 19% to $2.9bn, while adjusted earnings per share (EPS) of $2.80 beat expectations for $2.50.
What’s wrong then?
On the surface, there’s not much to grumble about here. So why on earth has the stock lost so much value? There are a few concerns swirling around the company right now. First, there’s rising competition, with emerging rivals attempting to muscle their way into this growing and lucrative global market.
One worth monitoring is China’s MicroPort MedBot. It’s taking market share in China and in March, its Toumai system performed the UK’s first long‑distance operation on a patient (located 1,500 miles away in Gibraltar).
Another issue is that some patients are choosing GLP-1 weight-loss medications over bariatric surgery. This might be having some impact, as full-year guidance for worldwide procedure growth was left unchanged at about 14.5%, despite the strong second quarter.
If growth’s slowing, there’s valuation risk. Because even after the crash, the stock still isn’t cheap, as this table shows:
| Revenue forecast | EPS forecast | Forward P/E | |
|---|---|---|---|
| 2026 | $11.7bn | $9.70 | 35.6x |
| 2027 | $13.3bn | $11.07 | 31.2x |
Finally, because Intuitive manufactures instruments in Mexico, tariffs are causing uncertainty.
My decision
Weighing things up, I don’t see this as a no-brainer buying opportunity. But it’s certainly an interesting one.
After all, hospitals worldwide are addressing a backlog of operations and widening access to minimally invasive care. The NHS, for example, is aiming for 500,000 robotic surgery procedures a year by 2035, up from 70,000 in 2023/24.
I’m tempted to add more on the weakness here, and think it’s an opportunity worth looking into.
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Ben McPoland owns shares in Intuitive Surgical.
