Is Intuitive Surgical, Inc. a Buy?

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What goes up must come down, right?

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That's probably been the hope for investors wanting to buy Intuitive Surgical (NASDAQ: ISRG) stock on a dip. So far this year, though, there hasn't been much of one for the robotic surgical systems maker. Intuitive Surgical stock has marched upward throughout 2017, and is now up around 85% year to date.

But is Intuitive Surgical a buy after racking up those huge gains? Here are the best arguments for and against the stock.

Buy now -- the momentum won't slow down

A quick glance at Intuitive Surgical's results from the third quarter highlights several reasons investors might want to buy the stock now. Demand for the company's da Vinci robotic surgical systems remains strong. Intuitive Surgical shipped 169 systems in the third quarter, a 26% year-over-year increase. However, that's really not the best news for investors.

While Intuitive Surgical is on track to generate close to $850 million in revenue this year from system sales, it makes over half of its money from selling instruments and accessories. How many instruments and accessories the company sells depends on how many procedures are performed using da Vinci systems. And that's where the really good news comes into play: Intuitive Surgical reported that worldwide procedures in the third quarter increased by 15% over the prior-year period.

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There's a good case to be made that strong procedure growth will continue for a long time to come. More da Vinci systems in use will naturally drive procedure volume, of course. Demographic trends should also help, with more Americans hitting the ages where hysterectomies and prostatectomies are most commonly performed.

Perhaps the greatest opportunity for growth, though, is with expansion into new types of procedures. Intuitive Surgical is developing new innovations to facilitate this expansion. For example, the company recently announced positive results from the first clinical study conducted with its new flexible robotics platform. This new system is still under development, but it already looks quite promising. The catheter-based technology enables access to hard-to-reach areas of the body through natural openings, like the mouth. In the initial study, the system was used to obtain sample lung tissue from small nodules -- important for early diagnosis of lung cancer. 

Hold off -- the good times won't last

On the other hand, those pessimistic about Intuitive Surgical's prospects have one particularly strong argument to make. Thus far in its history, Intuitive Surgical has enjoyed a virtual monopoly in robot-assisted surgery, at least in the procedures on which it focuses. But that monopoly won't last for much longer.

Medtronic (NYSE: MDT) took notice of the success that Intuitive Surgical has had and decided it wanted a part of the pie. The giant medical device company plans to launch its own robotic surgical system in 2018. Medtronic plans to start its rollout of the new system outside the U.S. but won't wait long to go after the big American market.

Intuitive Surgical has some reason to be worried. Medtronic already claims tight relationships with many hospitals in the U.S. and across the world. The company will almost certainly attempt to leverage those existing relationships, perhaps even offering bundled deals including its robotic surgical system. Even without such bundled packages, Medtronic could make its robotic system available at lower prices than da Vinci.

In the meantime, another potential competitor is already knocking at the door. TransEnterix (NYSEMKT: TRXC) recently won clearance from the U.S. Food and Drug Administration for its Senhance surgical robot system. Senhance has several nice features that da Vinci doesn't. And its instruments are reusable, which could make the system more cost-effective than da Vinci.  

To buy or not to buy?

Both arguments have merit. Demand for robotic-assisted surgical systems is growing. New innovations will allow more procedures to be performed using robotic surgical systems. That presents a tremendous opportunity for Intuitive Surgical. However, there's no question that the company will also face significant competition in the days ahead. I think the case for Intuitive Surgical, though, is stronger than the case against it.

I don't expect Intuitive Surgical to lose many of its existing customers to new rivals. These hospitals have already made big investments with da Vinci and are much more likely to try to get the most out of those investments than change horses in midstream. In fact, TransEnterix's CEO has publicly stated that it won't attempt to compete directly against Intuitive Surgical anytime soon. 

Also, I don't think that Intuitive Surgical will be asleep at the wheel in the face of new rivals. You can bet the company will do its best to outinnovate and outsell Medtronic, TransEnterix, and any other emerging competitors.

More importantly, my view is that the potential market for robotic surgery is large enough to support multiple players. Around 5.5 million surgeries are performed annually in the U.S. for the top 15 surgical procedures. Last year, Intuitive Surgical's da Vinci system was used in barely over 10% of that volume. There's a lot of room for growth -- and that's just in the U.S., where robotic surgery use is more prevalent.

What goes up does eventually go down. But there's no way to know when the next dip for Intuitive Surgical stock will occur. I continue to believe the prospects are great for the company. Is Intuitive Surgical a buy? My answer is an unequivocal "yes."

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Intuitive Surgical. The Motley Fool owns shares of Medtronic. The Motley Fool has a disclosure policy.