If you are a long-term investor, you already know that your job is to choose the best companies in fast-expanding businesses. If you buy stock at the right time in the life of the company, you will have a much higher chance of profit as long as it settles in its market. On the other hand, if you make a mistake by mistake, you tend to buy at the exact wrong time, leaving you to watch as your investment falls away over the months or years to come.
It is easy to see the danger of this trap with stocks like Intuitive Surgical (NASDAQ: ISRG), which makes the Da Vinci robotic surgery series. Its stock has risen nearly 30% this year, reflecting its strong performance since 2018, and its price is close to its highs. Nonetheless, the company’s quarterly revenue rose 4.5% year-over-year, earning its earnings nearly 21%. That’s enough to get warning bells for most investors. But does it mean it’s too late to invest? Is it Intuitive ‘s best days in the past, or can he collect from what he missed this year?
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2020 has been a rough one for the healthcare sector
Many Intuitive problems stem from the economic impact of pandemic. With selective and non-emergency surgeries postponed to make way for hospitals for COVID-19 patients, the company’s Da Vinci surgical robots have not seen as much use as they used to normal, especially in the first part of the year. This means that customers do not need as many paid maintenance services or disposable surgical instruments. To help customers, the company also provided maintenance credits, reducing their latest quarterly service revenue by $ 23 million.
Similarly, health care systems are struggling to pay for the equipment they need to treat infectious patients, so there may not be much left in their budgets to replace robots or purchase new facilities for the robots they installed. As a result 29% fewer robotic surgery rooms were fitted in the third quarter compared to 2019.
So, if you look at Intuitive performance so far this year and started questioning whether the stock move was going out, take heart. The conditions that caused its bad year should be cleared through 2021. As continued (hopefully) release of coronavirus vaccines is gradually reducing the burden on hospitals, people need the surgeries that have passed put off giving. And hospital budgets will get back over time, so they will have enough money to buy more facilities for their robotic surgery facilities, or perhaps completely new units. Intuitive then gradually begins to resume its growth path from the time of the pandemic, causing its stock to expand again.
In other words, it’s never too late to buy.
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When is the next window of opportunity to buy?
Intuitive is already showing signs of recovery. Its stock price recovered sharply from the crash in March, and the number of operations performed by its Da Vinci robots rose 7% year-over-year in the third quarter. In addition, there are still many of the major effects it had before the pandemic, such as a healthy profit margin, zero debt, and strong cash flow. But its valuation seems to be a bit high, as its price to earnings (P / E) is around 88 much higher than the medical equipment industry average of about 46.
This means that conservative investors may want to monitor Intuitive stock as a hawk for any correction. For those who are willing to pay a high price for reliable growth, it may be a good move to buy right now, as there is no guarantee that any correction will come, and there are no catalysts for man on the horizon. After all, the pandemic may accelerate next year. In the meantime, Intuitive will continue to install new Da Vinci systems, all of which require maintenance contracts and a steady stream of disposable devices, thus earning revenue in the future.