FIRST THINGS FIRST
You probably clicked because you saw “The Tesla of Med Dev” in the title. That’s not clickbait, and we’ll get into the justification for the comparison. ISRG has actually been around much longer, so you might even call TSLA the ISRG of EVs.
But more importantly than anything you need to realize this is 2021 and the tickets to the rocketship were sold 10 or 20 years ago. This is a pure fundamentals play now. Do NOT get into this ticker expecting it to be a ten-bagger. This is simply a high-quality company that’s a steady gainer, perfect for LEAPs or shares.
WHAT IS INTUITIVE SURGICAL $ISRG?
Intuitive Surgical is a large cap Medical Device company that makes the da Vinci Robotic Surgical System (https://www.davincisurgery.com/) the most advanced robotic surgical system in the world, and a damn-near monopoly in the field of “minimally invasive laparoscopic surgery”. This means the surgeon makes a tiny incision that the surgical tools are snaked into, rather than having to make large cuts into the chest cavity, abdomen, etc. The regular, old-school type of surgery is called “open surgery” because, well, they cut you all the way open in order to operate.
This means for the patients, ISRG allows quicker procedures with faster patient recovery time and less chance of surgical complications. For the surgeons and hospitals who are paid per-procedure, they are able to in some cases TRIPLE the number of patients they operate on in a given time frame. Win-win for all parties.
There have been over 5 million surgeries worldwide performed on da Vinci machines. A human surgeon mans the robot, and surgeons LOVE this device. If you have family or friends who are doctors, ask them what their surgeon friends think of da Vinci. Unless they’re an old surgeon who lost all their business to it you’re going to hear from them how much of a gamechanger it is.
Most importantly they do general surgery (unlike literally every other public Robotic Surgery company). ELI5 that means “a hell of a lot of types of surgeries”, here is a snippet from their site of what their device can do:
Cardiac Surgery: Includes mitral valve repair
Colorectal Surgery: Includes colectomy and rectal resection
General Surgery: Includes ventral and inguinal hernia repair and bariatrics
Gynecologic Surgery: Includes benign and cancerous hysterectomy and myomectomy
Head and Neck Surgery: Includes throat cancer procedures
Thoracic Surgery: Includes lobectomy and mediastinal mass surgery
Urologic Surgery: Includes prostate, bladder and kidney cancer surgery
tl;dr other than Orthopedic, Brain, and certain types of Heart surgery, this device allows a surgeon to perform basically any kind of surgery.
They’re so far ahead of the competition, that they have had only one real competitor ever: Verb Surgical, a behemoth collaboration between Johnson & Johnson and Verily (Google). While JNJ and GOOG are heavyweights, Google bailed from the partnership and it’s solely JNJ now, once they realized how large of a lead ISRG has and that they’d probably never catch up. ISRG performs 77% of all robotic surgeries in the world.
BUT YOU MENTIONED TESLA THOUGH?
Let me tell you a story. I always wanted to buy this company’s shares but never did because it was “too expensive” at $350 back in 2014… then still too expensive at $600, then $800 then $1000. At this point they split 3:1 (in 2017) back to the 300s. Sound familiar yet? Maybe a little.
But then, post-split $375 still felt too expensive for me. Then it hit $500 again, then $800, then $1000 AGAIN… yeah, now I think you see where the TSLA comparison comes into play.
Smartly, they just 3:1 split AGAIN a few weeks ago, and their stock is currently now at $343. Not that share price by itself matters, but they do have a 122.65B market cap. Let’s put it in context: if you put just $150 into this stock 21 years ago at IPO, it would be ~$25,000 today. Sure, not quite as much ROI as TSLA since IPO, but pretty damn close.
BUSINESS MODEL
You may be wondering how such a high-capital-expense company can have such amazing growth. They make NVDA look like NFLX (that’s to say, much, much higher capital expenses than even semiconductor companies). And yet their profit margin is 27% as of last earning.
This is insane for a “hardware/device” company. I mean truly insane. Google and Facebook have 30-35% margins with fully digital products and little to no manufacturing or distribution costs. I’m not sure I can fully express how insane it is for a globally-distributed robotics company to be achieving profit margins equivalent to pure Tech companies.
How? They have aggressive global sales, their devices in over 65 countries, and in all 50 states in the USA. ISRG does all their own R&D, manufacturing, computer programming, electronics/mechatronics, quality testing, distribution, sales, and marketing in-house. In other words they have fully integrated vertical manufacturing on lock, just in case you needed more similarities to TSLA.
A single da Vinci robot costs $2M for a hospital to purchase, and large hospitals will buy several of them. In addition, due to the complexity of the machine, hospitals purchase Field Service maintenance packages where engineers will provide guidance to the doctors and also perform maintenance.
But that’s not even how they really make their money. These geniuses figured out the “subscription model” way before it was cool. Over 70% of their money comes from recurring revenue. It’s a brilliant model - each pair of tools and accessories, whether it’s surgical scissors, grippers, electrocautery tools, surgical stapler, etc, comes with a certain number of “lives” (usually 10 or 50 depending on the tool). After each surgery, one life decrements.
The surgical scissors may still be sharp after 10 uses, but the “lives” will have decremented to zero, and that pair of scissors can no longer be used on any machine. The hospital must purchase a replacement set of scissors. It’s like Dollar Shave Club but for a life-saving device and each tool costs hundreds, or thousands. And each procedure will use multiple tools, typically at least an endoscope, scissors, cautery, and staplers, plus more depending on the surgery. A single procedure decrements all devices by one “life” over time racking up significant revenues for the company in device replacement costs. To date they’ve performed over 5 million surgeries. And In their 2020 annual report they stated there is an opportunity for up to 6 million surgeries per year. And they’ve always increased their yearly operations year-over-year.
SO WHATS THE PLAY
Shares or LEAPs. That’s it. I don’t have price targets. I have no clue how much higher it will get. For those of you who like charts, look at their YTD chart. Then their 1Y chart. Then their 5Y chart. Then the 10Y then the 20Y. I trust you’ll figure out the trend. Buy on dips. This thing goes up and to the right over time, period.
You should also be aware before buying that they have a 70+ P/E, which is insanely high, and a frequent (and valid) criticism by bears. That doesn’t bother me, but do your own research first.
All I know is this juggernaut company has a de facto monopoly and no competitors on the horizon, has a massively positive reputation amongst surgeons and it truly helps patients, dozens of new countries to expand into, hundreds or thousands of existing hospitals to continue selling to, the future is bright for this one.