With an underestimated profit margin of 30%, Intuitive Surgical, Inc. (NASDAQ: ISRG) may be a great find for investors
Band Goran Damchevski
This article was originally published on Simply Wall Street News
Intuitive surgery (NASDAQ: ISRG). But if you pay close attention to it, you might understand that its strong financial data could mean that the stock could potentially see its value rise in the long run, given how the markets typically reward companies with good health. financial. Specifically, we decided to study Intuitive surgery ROE and future growth in this article.
We use estimates from analysts who follow the business to see where the business is heading in the future. By looking at fundamental performance, we follow 4 metrics: Revenue, profit, operating flow and free cash.
Revenue growth is the front line of the business and reflects what we expect to see in the years to come. This translates into profit or net profit, that is, the bottom line. As investors, we are interested in the cash flow that the company reserves for investors, which is why we compare earnings with cash flow – Profits are what accountants put on the books, but cash flows Free cash flow is what goes into the company’s cash flow balance.
When earnings and cash flow diverge, trust the cash flow.
By looking at Intuitive Surgical, we can see that it is a very profitable business and that the free cash flow is even higher than the advertised profits! This can be a leading indicator of improving a business’s performance and is known as the accrual ratio.
Intuitive Surgical has a very high profit margin of 31%, and projections indicate that revenues will increase by 10% per year. Revenue is also expected to reach an annual growth rate of 12.5%, which is higher than the industry’s 8.3% expected revenue growth rate.
All of this is reflected in the value of the business, and our models indicate that Intuitive Surgical is undervalued, which could lead to an appreciation of the share price.
Return on equity
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Intuitive Surgical is:
15% = US $ 1.6 billion ÷ US $ 11 billion (based on the last twelve months to June 2021).
The “return” is the annual profit. This therefore means that for every $ 1 invested by its shareholder, the company generates a profit of $ 0.15.
Intuitive Surgical profit growth and 15% ROE
Intuitive Surgical appears to have a decent ROE. Additionally, the company’s ROE compares quite favorably to the industry average of 11%.
This adds context to Intuitive Surgical’s decent 14% net income growth seen over the past five years.
Then, comparing Intuitive Surgical’s net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 14% over the same period.
Profit growth is an important metric to consider when valuing a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account.
This then helps them determine whether the stock is set for a bright or dark future. Is Intuitive Surgical just valued over other companies? Those 3 valuation measures could help you decide.
Key points to remember
Overall, we are very satisfied with the performance of Intuitive Surgical. The company is very profitable and appears to be poorly priced, which could cause stocks to trend higher in the future.
The company is estimated to continue to grow both revenue and profits, and cash flow indicates that the company is currently underestimating its profits.
The company always reinvests a large portion of its profits at a high rate of return. This of course allowed the company to experience substantial growth in profits and to go through its growth phase.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.