I have been one of Intuitive's biggest cheerleaders for years and like everyone else was encouraged to find the company still growing successfully on all fronts. Given my favorable opinion of the company, and the stock, I took a look at where it stood after the run-up (closing Friday at $222.53) to see whether there might be any value left, or if the frenetic buying had exhausted the possibility.
"Too late. Done. You missed the move, move on" was how Jim Cramer characterized ISRG stock Friday, much like when he was down on the stock $80 ago. I fervently disagreed back then, but I might agree with him today.
During my jubilant period, ISRG was trading at a P/E ratio from 15 to 25, but today the trailing figure is 43, while the best guess projection looking forward is 36. Even the strong earnings report does not support a P/E of 40 to me.
The 52-week high is $332.80 and the stock's all time high is a hair under $360, but those were times of more rapid growth and a topped out stock market. I think the stock will return there some day but would be surprised if that day came soon without a major improvement in the global economy.
On the positive side, the company is another cash flow machine and has no long-term or short-term debt, with ROE, ROA and ROIC in the high teens. It is also running net profit margins of 24%.
Returning to the negatives, I frown on companies with high price-to-cash-flow ratios and ISRG is sporting a 5.8 figure, which is over three times what I would normally like to see. ISRG does not pay a dividend, and it is not likely to do so in the foreseeable future. Among my stock holdings almost everything pays some dividend. The other exception that comes to mind is Berkshire Hathaway (NYSE: BRK.A and BRK.B), but I have been more than willing to let 'my pal Warren' keep the change and make a few of my investment decisions.
Timing the market is a fool's game and few investors have proven to own any crystal balls. I think that investors have clearly jumped all over this stock, fearing the train was leaving the station without them. That has caused it to be propelled beyond any value that I can see. On the other hand, no one can say that it will not go higher, in particular if traders covering their short positions run for the hills.
The best thing I can recommend to anyone wanting to own this stock is to dollar cost average into it over the next year, perhaps buying shares every other month. I do think the stock will be higher in a year's time, but I do not think it is going straight up. Still, long term, ISRG could be double in five years or it could even be acquired. And while the stock competes for your investment dollar, I do not believe it is going to see any significant competition in its business.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of ISRG.