Is Intuitive Surgical, Inc.’s (NASDAQ:ISRG) Growth Strong Enough To Justify Its June Share Price?

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Intuitive Surgical, Inc. (NASDAQ:ISRG) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $533.05 is based on unrealistic expectations. Below I will be talking through a basic metric which will help answer this question.

Check out our latest analysis for Intuitive Surgical

Where’s the growth?

Analysts are predicting good growth prospects for Intuitive Surgical over the next couple of years. Expectations from 19 analysts are certainly positive with earnings per share estimated to rise from today’s level of $10.038 to $12.624 over the next three years. This indicates an estimated earnings growth rate of 11% per year, on average, which indicates a solid future in the near term.

Can ISRG’s share price be justified by its earnings growth?

ISRG is trading at quite a high price-to-earnings (PE) ratio of 53.11x. This tells us that Intuitive Surgical is overvalued compared to the US market average ratio of 18x , and overvalued based on current earnings compared to the Medical Equipment industry average of 41.6x .

NasdaqGS:ISRG Price Estimation Relative to Market, June 21st 2019
NasdaqGS:ISRG Price Estimation Relative to Market, June 21st 2019

We already know that ISRG appears to be overvalued when compared to its industry average. However, to be able to properly assess the value of a high-growth stock such as Intuitive Surgical, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 53.11x and expected year-on-year earnings growth of 11% give Intuitive Surgical a quite high PEG ratio of 4.85x. Based on this growth, Intuitive Surgical’s stock can be considered overvalued , based on the fundamentals.

What this means for you:

ISRG’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are ISRG’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has ISRG been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of ISRG’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.