Intuitive Surgical Pegged at One
I’m adding Intuitive Surgical, Inc. (ISRG) to the Fusion Watchlist.
PEG of 1 for a great growth company in the medical appliances industry is a bargain.
I was desperate to buy ISRG during 2006. For many months I sold puts between $90 and $115, with the shares always closing above the strike I had to be content with the premiums.
In summary – ISRG sell the best surgical robot. Great adoption rate set to continue with possible hiccup in 2009 due to stressed hospital budgets. ISRG is a razor and a blade company, half their sales are in blades. Their growth is illustrated by last years blade sales equaling the previous years total sales. That also highlights the power of disposable blades discovered by King Gillette a century ago. Buy-outs in medical devices are common and many large former growth companies would love to add ISRG’s growth at a reasonable price. [The current $100 is considerably below reasonable]
Catalysts – new procedures, investor sentiment, acceptable earnings forecast, buy-out
Risks – hospital budgets, GFC
Earnings due out 22 Jan the quarter has been pre-announced to some disappointment
The following is from a SA article. I have only read the following, but as it is exactly what I always say I look forward to going back and reading the rest.
Story stocks like Intuitive Surgical (ISRG) often soar to $350 a share or better from less than $5 in a few years, making the stock pickers who got in early look like geniuses. But by the time they top out, as ISRG did at $357.98 last spring, story stocks become groupie stocks. Their groupies never recognize the danger signs when they show up as they always do.
ISRG’s problems became pretty obvious last spring, but some groupies are still hanging on and calling the stock a buy. After announcing that its 2008 results would disappoint investors, ISRG closed Thursday at $110.54 a share. Several firms downgraded the stock to a hold from a buy. On Wall Street, “hold” means “sell.”
The article is mostly right. I need to double check the growth figures though, as ISRG’s 2008 sales were up 46% and earnings 38%. As I’m adding ISRG to my watchlist I’ve clearly come to a different conclusion.
I have no position in ISRG. My quick no look valuation is that within three years I’d look to sell ISRG with multiples and metrics 50% higher giving over a 100% return. If the fundamental story was still strong at that point, which I expect it would be, then I’d continue holding and only sell on once again ludicrous multiples.
I may do a longer analysis and write up, but that’s unlikely.
Reference
Excellent investor overview.
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