Yahoo Finance Intuitive Surgical Stock Appears To Be Significantly Overvalued
- By GF Value
The stock of Intuitive Surgical (NAS:ISRG, 30-year Financials) is believed to be significantly 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 $867.55 per share and the market cap of $102.7 billion, Intuitive Surgical stock appears to be significantly overvalued. GF Value for Intuitive Surgical is shown in the chart below.
Because Intuitive Surgical is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 10.3% over the past three years and is estimated to grow 13.47% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Intuitive Surgical has a cash-to-debt ratio of 10000.00, which is 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:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company 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 $4.6 billion and earnings of $9.7 a share. Its operating margin of 26.01% better than 87% of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks Intuitive Surgical's profitability as strong. This is the revenue and net income of Intuitive Surgical over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Intuitive Surgical's 3-year average revenue growth rate is better than 67% of the companies in the industry of Medical Devices & Instruments. Intuitive Surgical's 3-year average EBITDA growth rate is 3.3%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. 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 return on invested capital is 17.78, and its cost of capital is 7.41. The historical ROIC vs WACC comparison of Intuitive Surgical is shown below:
Overall, the stock of Intuitive Surgical (NAS:ISRG, 30-year Financials) is estimated to be significantly 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.
