How Intuitive Surgical Stock Gained 19.5% Last Month

Shares of Intuitive Surgical (NASDAQ: ISRG) rose 19.5% in October, according to data from S&P Global Market Intelligence. The maker of da Vinci robotic surgery systems posted third-quarter results on Oct. 21, beating analyst expectations by a country mile. The stock closed 12.9% higher the next day.

Intuitive Surgical's robotic results are crushing expectations

Intuitive Surgical saw third-quarter sales rise 23% year over year to $2.51 billion. The gains were led by a 33% increase in system sales. From installed system counts to average procedures per system and revenues per procedure, the company experienced significant growth in all aspects of its business model.

Adjusted net margins expanded from 32.8% to 34.5%, lifting earnings from $1.84 to $2.40 per diluted share. Wall Street's consensus had called for earnings near $1.99 per share on top-line sales in the neighborhood of $2.41 billion. I could go on, but you get the point. Intuitive Surgical's business is firing on every cylinder, resulting in strong top-line growth and lucrative profit margins.

It's not all smooth sailing, of course. Intuitive Surgical faces heavy tariff expenses, and there was a recall for its recently launched da Vinci 5 system in the spring due to technical issues with multiple parts. The system launch could have been smoother, in other words. But there's still heavy demand for da Vinci 5 installations, and the company often recommends upgrading older systems to the new platform. The existing systems are still better than no da Vinci installation at all, so they can be moved to other clinics or offices in the same health service network.

Image source: Intuitive Surgical.

Yes, Intuitive Surgical stock is expensive -- as always

This is not a cheap stock. Intuitive Surgical trades at 72 times trailing earnings and 85 times free cash flow these days. However, that's business as usual for this high-octane growth stock. The price-to-earnings (P/E) ratio, for example, sits very close to its five-year average of 73.6.

It's one of those richly valued growth stocks that you can't buy without holding your nose and looking away from its seemingly unreasonable valuation ratios. But my own position has gained 1,600% in almost exactly 15 years, and the robotic surgery growth story still appears to be in its early innings.

All told, investors must weigh Intuitive Surgical's innovative growth engines against rising competition and that imperfect da Vinci 5 launch. I'm not exactly itching to double down on my long-lived investment right now, but the stock is down 12% from January's all-time highs (despite October's robust recovery). If you don't yet have any of this exciting health tech stock, it could be a good idea to pick up just a share or two today.

Anders Bylund has positions in Intuitive Surgical. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.