Is Intuitive Surgical, Inc. a Buy?

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Intuitive Surgical, Inc. (NASDAQ: ISRG) is on a roll that doesn't appear to be slowing down at all. Shares of the robotic surgical systems maker skyrocketed nearly 73% last year. So far in 2018, Intuitive Surgical stock is up close to 40%.

These huge gains raise the question as to whether or not Intuitive can keep the momentum going. The answer to that question can't be found in the stock's performance, but rather with the underlying factors driving the company's business. Is Intuitive Surgical stock a buy right now? Let's look at the company's strengths, weaknesses, opportunities, and threats.

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Strengths

I'd rank Intuitive Surgical's head start in the robotic surgical systems market as the company's greatest strength. More than 4,500 da Vinci robotic surgical systems were installed across the world as of March 31, 2018. This sizable install base translates to recurring sales of instruments and accessories generating 71% of Intuitive Surgical's total revenue.

Another benefit of Intuitive's head start is that it has built up a solid track record. Customers don't have to worry about serious safety problems when using the da Vinci system. And Intuitive Surgical can easily point to the benefits of the system achieved by other customers.

The company's success in selling its systems and building up a nice recurring revenue stream led to another strength: its financial position. Intuitive Surgical reported a whopping $4.1 billion in cash, cash equivalents, and investments at the end of the first quarter with no long-term debt.

Weaknesses

The biggest weakness for Intuitive's business right now is...I've got nothing. Seriously. Everything is going that well for the company. Revenue growth was so strong in the first quarter that it even surprised Intuitive Surgical's executives.

There is one weakness that I see with Intuitive Surgical, but it's with the stock rather than the underlying business. Intuitive stock is expensive no matter how you look at it. We're talking about nearly 77 times trailing-12-month earnings, and 43 times expected earnings.

What about factoring growth into the equation? Intuitive Surgical's price-to-earnings-to-growth (PEG) ratio is a sky-high 4.15. If a chink in the company's armor does emerge, the stock's astronomical valuation could be a liability.

Opportunities

This category is an easy one. Let's start with the opportunities in expanding the types of procedures that da Vinci performs. Intuitive Surgical has moved into new procedures over its history and will undoubtedly continue to do so.

Another opportunity is in performing more of the procedures for which da Vinci is currently used. The long-term demographic trends in the U.S. work in Intuitive's favor on this front.

Intuitive Surgical isn't just focused on the U.S., though. Still, nearly 65% of the company's da Vinci systems are installed in the U.S. That means the global market remains underpenetrated, presenting yet another big opportunity for Intuitive.

Threats

For most of its history, Intuitive Surgical enjoyed a monopoly in the robotic surgical systems market. That's changing.

Medtronic (NYSE: MDT) already has a partnership and equity stake in Israel-based Mazor Robotics. Although Mazor's robotic surgical systems don't compete head to head against da Vinci, Medtronic plans to launch a new system in its fiscal year 2019, which began on April 28, 2018.

Intuitive Surgical could also face new competition from a smaller rival. TransEnterix's (NYSEMKT: TRXC) Senhance surgical robot system is now available. While TransEnterix CEO Todd Pope has stated that Senhance won't directly compete against da Vinci, the new system's capabilities could make it a real threat to Intuitive Surgical in the future.

Is the stock a buy?

In my view, Intuitive Surgical's strengths and opportunities clearly outweigh its weaknesses and threats. The stock is definitely expensive, though. I wouldn't be surprised if the momentum from 2017 and so far in 2018 slows down somewhat.

However, I think investors should keep a long-term perspective in mind with any stock, and especially one of a company like Intuitive Surgical, which is a pioneering leader in a cutting-edge technology (literally). My take is that Intuitive Surgical remains a solid long-term pick.

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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.