Revenues Tell The Story For Intuitive Surgical, Inc. (NASDAQ:ISRG)

You may think that with a price-to-sales (or "P/S") ratio of 24.2x Intuitive Surgical, Inc. (NASDAQ:ISRG) is a stock to avoid completely, seeing as almost half of all the Medical Equipment companies in the United States have P/S ratios under 3.3x and even P/S lower than 1.2x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Intuitive Surgical

How Intuitive Surgical Has Been Performing

Recent times have been advantageous for Intuitive Surgical as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Intuitive Surgical will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Intuitive Surgical?

The only time you'd be truly comfortable seeing a P/S as steep as Intuitive Surgical's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 15%. The latest three year period has also seen an excellent 43% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 15% per year as estimated by the analysts watching the company. With the industry only predicted to deliver 9.4% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Intuitive Surgical is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Intuitive Surgical's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Intuitive Surgical's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Intuitive Surgical with six simple checks will allow you to discover any risks that could be an issue.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.