Intuitive Surgical (NASDAQ: ISRG), a fast-growing robotic surgical platform company, has seen a sharp decline of 15% in a month, while it is down a significant 47% year-to-date. The broader markets have also seen a sharp correction, with the S&P500 down 10% in a month and 24% year-to-date. The decline in ISRG stock over the last month or so can be attributed to a sell-off in high-multiple growth stocks as investors move toward safer plays. The U.S. economy could be headed into a recession as the Federal Reserve looks to hike interest rates more aggressively to tame surging inflation. The central bank hiked rates by 0.75% this month after raising them by 0.5% last month. There is a possibility of another rate hike as soon as the next month. 
Intuitive Surgical has delivered stellar top and bottom-line growth over the recent years. Its sales more than doubled to $5.7 billion in 2021, compared to $2.7 billion in 2016, led by a rising installed base and higher demand for its instruments and accessories. A rise in procedure volume using robotic platforms has been driving this demand. Intuitive Surgical’s adjusted net income margin has remained above 30% for the past few years, barring 2020, where it declined to 28% due to the impact of the pandemic on the overall procedure volume. The company has no significant debt, while it has a cash balance of $4.2 billion on its books. While there are concerns of rising competition with Medtronic and Johnson & Johnson developing robotic platforms, the potential market is enormous, with total robotic-assisted procedures accounting for only a low single-digit of the total procedure volume globally.
Overall, we think ISRG stock is undervalued at its current market price of about $191 per share, trading at about 35x forward earnings. This figure is much lower compared to around 60x average of the last three years. Intuitive Surgical has been trading at a high multiple due to its rapid growth and a significant market share of 80% in robotic surgeries. We have a $349 per share valuation, which is almost 83% ahead of the current market price, implying that investors can buy ISRG stock after its recent dip for solid gains in the long run. See our analysis on Intuitive Surgical Valuation: Is ISRG Stock Expensive Or Cheap? for more details on Intuitive Surgical’s valuation and how it compares with peers. For more information on Intuitive Surgical’s business model and revenue trends, check out our dashboard on Intuitive Surgical Revenue: How ISRG Makes Money.
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Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Medtronic vs. Ferro.
|S&P 500 Return||0%||-22%||84%|
|Trefis Multi-Strategy Portfolio||-12%||-29%||184%|
 Month-to-date and year-to-date as of 6/17/2022
 Cumulative total returns since the end of 2016