Intuitive Surgical Just Keeps Growing (ISRG)

| About: Intuitive Surgical, (ISRG)

I've decided to build out my position in Intuitive Surgical (NASDAQ:ISRG) by a little bit this morning, bought some more at $89.71.

There is certainly some risk that I am succumbing to irrational exuberance here, as ISRG is certainly not a cheap company at this point -- but it wasn't cheap when it was at $40 in the spring or at $70 a few weeks ago for my first purchase, either. Sometimes companies with this growth potential never look cheap. I was hoping for a weaker quarter and a pullback, but after seeing this earnings release and reading up some more on the company my best guess is that we're not going to see one of those for a while. I am reserving the right to make another buy if they have a tough quarter or some temporary bad news, but at this point I don't expect it.

There are a few things I like about this that I haven't noted in any of my earlier postings on ISRG over the past couple of weeks. Of course they are growing extremely rapidly, but it is important to look at the way they are growing.

They're starting to sell more overseas, which is a major and almost untapped market, and they are getting higher than expected growth on the revenue streams that we expect will be more stable -- training, service, and tools and accessories. Their success in selling more machines this quarter (30) than expected really bumped the earnings number up, but it is the fact that the installed base is now over 350 that will really drive earnings moving forward. The more machines there are out there and the more doctors there are trained, the more surgeries will be done and the more recurring revenue ISRG will see. And the more difficult it will be for any competitors to gain a foothold.

The success this year in placing more and more machines in hospitals should mean great success on the bottom line for years down the road -- and of course, the more doctors there are who get trained on these and like them and the more patients who prefer these easier-recovery surgeries, the more demand for Da Vincis.

And that doesn't even approach the real reason Intuitive Surgical might become dramatically larger in the years to come -- which is that they are only really making a dent in a few specialized surgical areas, with a very strong position in urological surgeries. If they can add on that to do more gynecological procedures and further expand their repertoire around the body in all the places where a less invasive laparoscopic robot could improve results, the market size grows dramatically and no hospital will be able to get by with only one Da Vinci.

And finally, I like that most of the analysts who cover ISRG -- and there are only a few -- are well behind the growth curve (as we have all been, it's fair to say) and are almost all rating it as "neutral", "hold", or "underperform". That could create pent up demand for the shares as well, and is another risk for waiting to buy -- with ISRG's track record for increasing sales and developing a recurring revenue stream, I have to believe that a few of these analysts (or some others that might decide to open coverage) will have to upgrade ISRG and admit that they've underestimated them. According to the Yahoo Finance tallies, the average target price is still below $70 ... not for long, I imagine.

So I'm not willing to wait for more good news. Have bought some more and we'll see how it plays out, I expect I'll be very happy with my Intuitive Surgical holdings in 2008, and perhaps will have some chances in the interim to add more to my position.