Intuitive Surgical Inc (ISRG, Financial) recently experienced a daily loss of -4.38%, with a 3-month loss of -14.33%. Despite these figures, the company's Earnings Per Share (EPS) stands strong at 3.99. This raises the question: Is the stock modestly undervalued? This article will delve into a comprehensive valuation analysis to provide an answer. Let's explore.
Company Introduction
Intuitive Surgical Inc is a pioneer in the development, production, and marketing of a robotic system designed to assist minimally invasive surgery. The company's innovative approach also extends to providing instrumentation, disposable accessories, and warranty services for the system. With over 8,000 da Vinci systems placed in hospitals worldwide, including nearly 5,000 installations in the U.S. and a growing number in emerging markets, Intuitive Surgical's influence is palpable.
At present, the company's stock price stands at $284.79, while the GF Value, an estimation of its fair value, is $364.62. This discrepancy suggests that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally trade.
If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Currently, Intuitive Surgical's market cap is $100.10 billion, and based on our GF Value, the stock appears to be modestly undervalued.
Given this undervaluation, the long-term return of Intuitive Surgical's stock is likely to be higher than its business growth.
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Financial Strength
Before investing in a company's stock, it's crucial to assess its financial strength. Investing in companies with poor financial strength poses a higher risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Intuitive Surgical boasts a cash-to-debt ratio of 10,000, ranking better than 99.64% of 833 companies in the Medical Devices & Instruments industry. Overall, the company's financial strength is strong, scoring 10 out of 10.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have consistently demonstrated profitability over the long term. A company with high profit margins typically offers better performance potential than one with low profit margins. Intuitive Surgical has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $6.70 billion and Earnings Per Share (EPS) of $3.99. Its operating margin of 24.34% is better than 88.19% of 830 companies in the Medical Devices & Instruments industry. Overall, GuruFocus ranks Intuitive Surgical's profitability as strong.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Intuitive Surgical is 11.2%, ranking better than 60.66% of 727 companies in the Medical Devices & Instruments industry. However, its 3-year average EBITDA growth rate is 6.8%, ranking worse than 54.25% of 730 companies in the same industry.
Another method of determining a company's profitability is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Intuitive Surgical's ROIC is 16.91, and its WACC is 14.48.
Conclusion
Overall, the stock of Intuitive Surgical (ISRG, Financial) is believed to be modestly undervalued. The company's financial condition is strong, and its profitability is robust. However, its growth ranks worse than 54.25% of 730 companies in the Medical Devices & Instruments industry. To learn more about Intuitive Surgical stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
