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Is Intuitive Surgical, Inc. (NASDAQGS:ISRG) overvalued at 83.67x Price To Earnings?


Intuitive Surgical, Inc. (NASDAQGS:ISRG) is currently trading at $749.50, at approximately 94.7% of its 52-week high of $792.54. With the stock price up 37.6% in the last year, investors are worried that the company is getting too expensive. So, is Intuitive Surgical, Inc. overvalued? In this article, we’ll discuss Intuitive Surgical, Inc.’s valuation using different valuation models.

Historical Valuation

One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.

Considering Intuitive Surgical, Inc.’s latest twelve months revenue/share of $36.64 and using the company’s 5-year average price to sales of 13.87x as a benchmark, we have a fair value of $508.13, which is -32.2% lower than the current price.

With no surprise, we can see that Intuitive Surgical, Inc.’s price to sales of 20.5x is much higher than its 5-year average of 13.9x, indicating that the company is probably trading in overbought territory. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.

Source: Finbox Chart’s Engine

Absolute Valuation: Intuitive Surgical, Inc. DCF Analysis

Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.

So, let’s analyze Intuitive Surgical, Inc. with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 10.5%, an average EBITDA margin forecast of 40.8%, a discount rate of 9.0%, and a terminal EBITDA multiple of 28.6x, we get a fair value of $631.0.

So, Is Intuitive Surgical, Inc. Overvalued?

Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.

The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.

According to the estimate, Intuitive Surgical, Inc.’s fair value is $535.17, representing a -28.6% downside from the current price. Below are the fair value estimates for each model.

Source: Finbox Fair Value Estimates

Company’s Profile: Intuitive Surgical, Inc.

Intuitive Surgical, Inc., together with its subsidiaries, designs, manufactures, and markets da Vinci surgical systems, and related instruments and accessories in the United States and internationally. The company’s da Vinci Surgical System include surgeon’s consoles, patient-side carts, 3-D vision systems, da Vinci skills simulators, da Vinci Xi integrated table motions, and Firefly fluorescence imaging products that enable surgeons to perform various surgical procedures, including gynecologic, urologic, general, cardiothoracic, and head and neck surgical procedures. It also manufactures EndoWrist instruments, such as forceps, scissors, electrocautery tools, scalpels, and other surgical tools, which incorporate wrist joints for natural dexterity for various surgical procedures. In addition, the company offers EndoWrist Stapler, a wristed stapling instrument for resection, transection, and creation of anastomoses; and EndoWrist One Vessel Sealers that are wristed single-use instruments for bipolar coagulation and mechanical transection of vessels up to 7mm in diameter and tissue bundles that fit in the jaws of the instrument. Additionally, the company sells various accessories comprising sterile drapes for ensuring sterile field during surgery; and vision products that include replacement 3D stereo endoscopes, camera heads, light guides, and other items that facilitate use of the da Vinci Surgical System, as well as Ion endoluminal system for biopsies. Intuitive Surgical, Inc. was founded in 1995 and is headquartered in Sunnyvale, California.

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