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Despite the recent pullback where Intuitive Surgical (NASDAQ: NASDAQ:ISRG) fell as much as 16% from its peak on 2nd September 2020, DCF valuation analysis suggests that it is still currently slightly overvalued. Nevertheless, due to its attractive growth proposition as an industry leader, this is a stock to keep on close watch.
Companies which have a large market share within a growing industry are often valued very highly due to their first mover advantage and high projected growth, such as Nvidia (NVDA) within the chip industry and Tesla (TSLA) within the EV space. Intuitive Surgical finds itself in a similar dominant position in a niche segment, commanding 80% of the global robotic-assisted surgery systems industry. According to Medtech Insight, "the global market for robotic surgery systems is expected to reach $9.7bn by 2023", which is almost double the market size for 2019, representing a rapid 20%-25% year-on-year growth.
To analyse its intrinsic value, we will identify growth factors and discuss a DCF approach to derive an implied share price for ISRG.
Growth Story
ISRG produces patented da Vinci robotic systems and its sales are mainly in the US market, although it has successfully reduced its reliance on the domestic US market, i.e. from 73% US sales to 69% US sales between 2017 and 2019 and is forecasted to continue this trend. This is due to its strategy of expanding its international portfolio (mainly focused on Japan, Korea, China and Germany). Non-US revenue growth has been strong at c.25% per annum.
How likely could we
