This Cathie Wood Growth Stock Is on a Bull Run -- but Is It a Buy?

Cathie Wood's ARK Autonomous Technology & Robotics ETF is known for investing in cutting-edge companies, whether their shares are up or down. Intuitive Surgical (NASDAQ: ISRG) is one of her current holdings -- and its stock is definitely up, surging about 20% in the past year thanks to renewed investor optimism about the robotic surgery market where it is the leader.

Could the stock climb further from here? Let's take a closer look and see.

The dominant provider in a growing market

With Intuitive Surgical, the star of the show is its razor-and-blade business model. The company sells its Da Vinci-brand robotic surgical devices to hospitals (the razors), which then also need to buy things (the blades) like replacement parts, maintenance services, and the occasional upgrade to their set of robotic toolheads.

Each robot costs customers up to $2.5 million. And the more procedures customers perform with the robots, the more consumables they need to buy. On average, each procedure brings in between $600 and $3,500 in revenue, which is why 79% of the company's revenue is highly recurring in nature.

Given the above, it's a major point in this stock's favor that the number of globally installed Da Vinci systems and procedures performed with the Da Vinci worldwide is growing -- and quickly. From 2019 to 2022, global procedure volume grew by 15% per year, topping more than 1.7 million.

The company's base of installed units rose by 11% annually in the same period, and now there are around 7,779 in operation in total. With so much growth in both consumables and systems, it's not surprising that quarterly net income climbed by 422% in the last three years, reaching $355 million in the first quarter.

And because it takes time to train surgeons to use the robots, there's a built-in moat in the form of sunk costs, which keeps customers from defecting to a competitor's system. In sum, Intuitive Surgical has a highly effective growth engine, and there's little to suggest that there are major headwinds in the works in the near term.

Competition could still be a long-term risk

The biggest long-term challenge to Intuitive's future is competitors that enter the robotic surgical market and subsequently take market share. Right now, there's no single competitor that makes anywhere near as much money from robotic surgery as this business does. But powerful and diversified players like Stryker have long competed in segments like robotic joint replacement and may eventually encroach on Intuitive Surgical's turf of general surgery.

Aside from the risk of competition, the stock's valuation is a risk for investors who aren't willing to hold onto their shares for a long period. Its price-to-earnings multiple is quite high at 73, which could leave it vulnerable to a sharp correction if market turmoil sparks a flight to safer investments.

But given that Intuitive Surgical is profitable, steadily growing over the course of years, debt-free, and backed by a great business model, its high valuation is at least somewhat warranted. In other words, this stock isn't very vulnerable to a spectacular valuation-driven collapse because its fundamentals are quite strong.

Does that mean you should buy Intuitive Surgical while it's on a bull run? If you're looking to expose your portfolio to a bit more growth without taking on a major amount of risk, the answer is yes. Just be aware that this isn't a company that's immune to external factors, even if most of its risks are under control for now.

Its supply chains are already under a bit of pressure due to a combination of inflation, geopolitical events, labor shortages, and the semiconductor shortage of the last few years. That hasn't yet caused margins to significantly compress, but that could change in the future. If you buy shares today, be ready to hold them for a few years to mitigate the impact of any future issues on Intuitive Surgical's stock price.

10 stocks we like better than Intuitive Surgical
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Intuitive Surgical wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of April 24, 2023

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.