Stock Analysis

Returns On Capital At Intuitive Surgical (NASDAQ:ISRG) Paint A Concerning Picture

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NasdaqGS:ISRG
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Intuitive Surgical (NASDAQ:ISRG) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Intuitive Surgical, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.14 = US$1.7b ÷ (US$14b - US$1.2b) (Based on the trailing twelve months to June 2022).

Therefore, Intuitive Surgical has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 9.3% it's much better.

View our latest analysis for Intuitive Surgical

roce
NasdaqGS:ISRG Return on Capital Employed September 26th 2022

In the above chart we have measured Intuitive Surgical's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Intuitive Surgical here for free.

What Does the ROCE Trend For Intuitive Surgical Tell Us?

In terms of Intuitive Surgical's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 21% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Intuitive Surgical's ROCE

While returns have fallen for Intuitive Surgical in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. Furthermore the stock has climbed 64% over the last five years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you're still interested in Intuitive Surgical it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

What are the risks and opportunities for Intuitive Surgical?

Intuitive Surgical, Inc. develops, manufactures, and markets products that enable physicians and healthcare providers to enhance the quality of and access to minimally invasive care in the United States and internationally.

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Rewards

  • Earnings are forecast to grow 15.9% per year

Risks

No risks detected for ISRG from our risks checks.

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About NasdaqGS:ISRG

Intuitive Surgical

Intuitive Surgical, Inc. develops, manufactures, and markets products that enable physicians and healthcare providers to enhance the quality of and access to minimally invasive care in the United States and internationally.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation0
Future Growth3
Past Performance2
Financial Health6
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet with moderate growth potential.