- By GF Value
The stock of Intuitive Surgical (NAS:ISRG, 30-year Financials) gives every indication of being modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $747.6 per share and the market cap of $88.5 billion, Intuitive Surgical stock appears to be modestly overvalued. GF Value for Intuitive Surgical is shown in the chart below.
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ISRG 15-Year Financial Data
The intrinsic value of ISRG
Peter Lynch Chart of ISRG
Because Intuitive Surgical is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 10.3% over the past three years and is estimated to grow 11.57% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Intuitive Surgical has a cash-to-debt ratio of 10000.00, which which ranks better than 100% of the companies in the industry of Medical Devices & Instruments. The overall financial strength of Intuitive Surgical is 9 out of 10, which indicates that the financial strength of Intuitive Surgical is strong. This is the debt and cash of Intuitive Surgical over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Intuitive Surgical has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.4 billion and earnings of $8.81 a share. Its operating margin is 24.09%, which ranks better than 87% of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks the profitability of Intuitive Surgical at 9 out of 10, which indicates strong profitability. This is the revenue and net income of Intuitive Surgical over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Intuitive Surgical is 10.3%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth is 3.3%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Intuitive Surgical's ROIC was 16.13, while its WACC came in at 7.51. The historical ROIC vs WACC comparison of Intuitive Surgical is shown below:
In short, the stock of Intuitive Surgical (NAS:ISRG, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Medical Devices & Instruments. To learn more about Intuitive Surgical stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.