Should You Buy This Industry-Leading Stock on the Dip Now?

Medical devices giant Intuitive Surgical (NASDAQ: ISRG) was already having a rough year in the stock market, but things worsened for the company when it released its second-quarter earnings report on July 21. Investors were not impressed and swiftly sent the company’s shares tumbling. It’s rarely great news when a corporation fails to meet market expectations.

Still, even though Intuitive Surgical is facing some issues, it remains in an excellent position to be a winner in the long run. Let’s consider why.

ISRG data by YCharts

Intuitive Surgical’s quarterly update

In the second quarter, Intuitive Surgical posted top-line growth of 4% year over year to $1.52 billion. That’s a disappointing revenue growth rate by the company’s otherwise stellar standards. But why did Intuitive Surgical perform poorly during the period? In a word, COVID-19. A resurgence of cases of the potentially deadly disease harmed the company’s business by impacting the volume of procedures performed with its crown jewel, the da Vinci Surgical System.

Intuitive Surgical makes a good portion of its revenue through selling instruments and accessories, a number closely tied with the volume of procedures. On the bottom line, the healthcare giant reported adjusted net earnings per share of $1.14, which came in lower than the $1.30 reported during the comparable period of the previous fiscal year. Intuitive Surgical did grow its installed base by 13% year over year to 7,135 during the quarter, although da Vinci Surgical Systems shipments decreased by 15% year over year to 279.

Look beyond short-term drivers

Coronavirus-related headwinds shouldn’t scare off long-term investors. The pandemic may still be a thing, but it won’t be with us forever. It’s impossible to give an accurate timeline of when it will end, but in the meantime, buying shares of Intuitive Surgical on the dip is a great idea. Postponed elective surgeries only create a backlog of procedures for physicians to handle in the future.

That’s because an “elective surgery” is just one that needs to be scheduled in advance, so long as it is within a time frame during which the patient is unlikely to encounter severe, debilitating pain or a serious life-threatening situation. It isn’t necessarily an optional surgery with little to no consequence for the patient’s health.

Quite the contrary, many such elective procedures are critical. For example, mastectomies to treat breast cancer are sometimes considered elective surgeries.

The disruption in the volume of procedures Intuitive Surgical experienced during the second quarter is disappointing, but investors can be sure that this number will eventually rise again. That’s especially the case if we look beyond the next couple of years or so that may still be impacted by pandemic-related dynamics.

The minimally invasive surgeries physicians can perform thanks to robot assistance are on a solid upward trajectory since they confer health benefits over traditional open surgeries, including less bleeding, less pain, faster recovery, shorter hospital stays, and more. Analysts estimate that the robotic-assisted surgery (RAS) market will record a compound annual growth rate of 19.3% through 2030.

That won’t be the end of it. The world’s population is aging. According to the World Health Organization, people older than 60 will make up 22% of the world’s population by 2050, compared with just 12% as of 2015. As people get older, they need more medical care. That means more work for Intuitive Surgical and its RAS device, the da Vinci system.

That’s especially the case given that the company already leads this industry. It boasted a nearly 80% market share as of 2020. The competition will heat up, but Intuitive Surgical has built a solid brand name over the past couple of decades, and that counts for something. Physicians, like other consumers, tend to stick to what they know works.

Those healthcare facilities with a da Vinci System installed are unlikely to jump ship after spending between $500,000 and $2.5 million on purchasing one, not to mention countless hours training their staff on how to use it. That’s why short-term issues are just noise for Intuitive Surgical. Sticking with this healthcare company and buying more of its shares despite its issues seems like the right move.

Prosper Junior Bakiny has positions in Intuitive Surgical. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.

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