Is Intuitive Surgical Stock a Buy?

Intuitive Surgical (NASDAQ: ISRG) has rewarded long-term investors by climbing nearly 200% over the past five years. This is thanks to the company's leadership in a hot growth area: robotic surgery. Hospitals and surgeons have turned more and more to robotic systems for a wide range of procedures as they've helped boost efficiency and improve outcomes.

Intuitive Surgical's flagship product, the da Vinci surgical system, has helped it dominate the market and steadily grow revenue and profit over the years. Momentum continued in the recent quarter, with Intuitive Surgical on Tuesday reporting double-digit growth in procedures and revenue. But today this market giant faces one big challenge and that's the potential impact of President Donald Trump's tariffs on imports -- and retaliatory tariffs from China.

The tariff situation has weighed on Intuitive Surgical's shares, dragging them down about 8% so far this year -- the positive point is that's made the stock cheaper for investors. Considering the full picture, is Intuitive Surgical a buy right now, or is the tariff situation a red flag? Let's take a closer look.

Image source: Getty Images.

The da Vinci platform

First, a glance at the Intuitive Surgical story so far. The company's da Vinci platform is used across a wide range of minimally invasive procedures, from hernia repair to hysterectomy and gastric bypass. The company offers four versions of the da Vinci, including the most recent da Vinci 5. This latest system offers 10,000 times the computing power of the da Vinci Xi -- previously the most powerful of the bunch. The da Vinci 5 supercharges operating room workflow and data analytics, improving processes and outcomes.

One major element has kept Intuitive Surgical in its leading position in surgical robotics -- a market that, at an estimated compound annual growth rate of about 15%, is expected to reach more than $25 billion by 2032. . Intuitive Surgical's fantastic competitive advantage is linked to the fact that surgeons trained on the da Vinci represent a significant investment for hospitals. Surgeons generally aim to stick with a system that's familiar to them, and hospitals aim to amortize their investment in robotic systems by using the platform over time. All of this has helped keep Intuitive Surgical in the lead.

Another reason for Intuitive Surgical's success is it doesn't only benefit from selling surgical robots. It actually brings in even more revenue from the sales of instruments and accessories used for each procedure. For example, in the latest quarter, surgical systems generated $522 million in revenue, while instruments and accessories brought in $1.3 billion. Each da Vinci system represents a source of recurring revenue.

All of this has helped Intuitive Surgical grow its da Vinci installed base of systems to 10,189 as of the end of March. Quarterly revenue advanced 19% to top $2.2 billion, net income climbed 28% to $698 million, and Intuitive Surgical ended the period with more than $9 billion in cash.

Tariff impact ahead

Now let's look at what might be on the horizon for this surgical robot powerhouse, and that's the potential impact of import tariffs. Donald Trump's tariff system changes quickly, but it looks like Intuitive Surgical may feel the pressure from various angles. The company imports into China subassemblies for da Vinci production for the local market On this, it will face 125% Chinese tariffs. Intuitive Surgical also imports components into the U.S. from China, and on these the tariff level is 145% as I write this. The company's imports from other countries outside the U.S. will be subject to a 10% tariff for now, but this could change after the current 90-day tariff negotiation period. Finally, a small number of Intuitive Surgical's imports from Mexico could face tariffs of 25%.

Intuitive Surgical expects that all of this will result in an impact of 1.7% on revenue this year, with gross profit margin in the range of 65% to 66.5% of revenue compared to 69.1% last year. The company says it will study the impact of tariffs on its cost of sales and demand for its products, and if impact is lasting it would consider "mitigating operational actions."

Meanwhile, Intuitive Surgical stock isn't necessarily cheap, trading at 60 times forward earnings estimates, but that's down from 80 late last year.

Time to buy?

Is this stock a buy? It's important to note that Intuitive Surgical isn't alone in facing tariffs. Most companies, across industries, import materials or goods and will feel the impact of these duties. So, I wouldn't stay away from a stock for this reason. What's most important is the company's ability to handle this headwind, and here, I'm confident about Intuitive Surgical. The company has a solid track record of growth, a strong competitive position, a mountain of cash, and already is speaking of making moves to limit the tariff impact if needed. On top of this, even with the projected impact of current tariffs, Intuitive Surgical remains highly profitable.

All of this makes Intuitive Surgical a great stock to buy on the dip and one to hold. It has what it takes to weather the tariff storm and deliver growth over the long term.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.