Intuitive Surgical (NASDAQ:) is focused on innovating to enhance the quality of, and access to, minimally invasive care.

Company’s principal offering is robotic-assisted surgical platform, which includes the da Vinci Surgical Systems. The company has seen its top and bottom line grow steadily over the years as robotic surgery continues to expand worldwide.

Intuitive Surgical, the largest company on the market, is expected to continue its expansion and be a leader within its field.

However, the stock is too expensive to overlook potential value compression. This is why I remain neutral on the stock. (See ISRG stock charts on TipRanks)

Recent Results

Intuitive Surgical’s Q2 results were truly impressive, mainly because of the company’s growth acceleration. Intuitive’s da Vinci delivery rates were affected by hospitals being flooded in the aftermath of last year’s COVID-19 epidemic. Intuitive continues to be a force in 2021.

The Q2 revenues were $1.46Billion, which is 72% more than the year before. This figure is not only significantly higher than the pre-COVID level, but also sets a quarterly record.

The company sold 328 da Vinci systems in the current quarter, which is 84% more than last year. This increase helped it grow its installed base to about 6,335 systems. It is remarkable that this number was achieved in spite of the fact that COVID-19, and variants thereof, continue to restrict hospitals’ capabilities in Europe.

Intuitive Surgical also has a rich margin that returned to normalcy quickly. Intuitive Surgical’s stable margins play an important role in the future success of the business and in its evaluation as a valuation multiple.

Due to Intuitive’s minimalistic operations and tidy balance sheet, which doesn’t hold a single dollar of long-term debt, apart from its operating and R&D expenses, the leftover gross profits drop down to the bottom line.

Intuitive’s net margins rose to over 35% in the last quarter. Intuitive is a cash cow that has been profitable every quarter and built a large cash balance of $7.7B without ever raising equity or debt.

Valuation Is Hard to Swallow

The stock’s valuation multiple has expanded to new highs, which is likely to reduce future upside. Current forward PE is 60.6 which is well above its historical average.

Additionally, dividends have not been paid by the company and they do not intend to. Investors should not expect capital gains in the short-term.

To return capital to its shareholders, the company will repurchase shares. The company may be paying too much for its stock, so it is unlikely that shareholders will benefit from buying back stock at such an expensive multiple. Investors need to be aware of stock’s current value and how it affects the potential short-to–medium-term upside or downside.

Wall Street’s Take

Turning to Wall Street, Intuitive Surgical has a Moderate Buy consensus rating, based on five Buys, nine Holds, and zero Sells assigned in the past three months. At $1,012.08, the average ISRG price target implies 1% upside potential.

Disclosure: Nikolaos Sismanis didn’t hold any position in the securities discussed in this article at the time it was published.

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