When it comes to the stock market, the best ideas aren’t always the ones everyone’s talking about. And while Netflix just hit a 52-week low, I’ve got my eye on something else.
A revenue miss and weak Q3 guidance has investors talking about the streaming giant. But another stock fell this week for a much flimsier reason.
Intuitive Surgical
I’ve been following Intuitive Surgical (NASDAQ:ISRG) shares for almost as long as I’ve been investing. Put simply, it’s a near-monopoly in a fast-growing industry.
The company makes robotic surgery systems. Its da Vinci platform handles keyhole procedures, while its Ion system performs minimally invasive lung biopsies.
The firm has three big advantages that add up to an enormously strong competitive position:
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First-mover scale: there are over 11,700 da Vinci systems installed worldwide.
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Switching costs: once a hospital installs a system, changing is difficult and expensive.
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Surgeon training: clinicians who have been trained on da Vinci systems have little incentive to learn a new one.
The business model’s a bit similar to Rolls-Royce. The real value driver isn’t the machines themselves, but everything that comes after – instruments, accessories and servicing.
Why it’s suddenly cheap
The reason I’ve been watching – rather than buying – this stock for ages is that the firm’s obvious strengths have meant shares have been expensive. But that’s changed.
Q2 results landed on 16 July. Revenues and earnings were ahead of expectations, margins increased, and the number of placements (setups for procedures) increased 18%.
Despite this, the stock still fell 11%. The main reason is that management left guidance for the full-year intact (despite Q2 sales coming in ahead of expectations).
That suggests the company isn’t actually doing better than expected – it’s just that growth’s showing up sooner than expected. But is that a reason for the stock to go down?
The share price had already fallen almost 30% since the start of the year. And the result is that the stock’s trading at some unusually low multiples at the moment.
The contrast with Netflix
Here’s the important contrast with Netflix. The streaming company disappointed investors because growth is genuinely slowing. On top of this, there are some worries about engagement. The falling share price might be an overreaction, but there are real signs of slowing in the numbers.
With Intuitive, the firm left guidance intact. There’s a risk worth taking seriously, which is that the likes of Johnson & Johnson, Medtronic, and Stryker are all launching robotic systems.
