Intuitive Surgical - a bargain?

I have spoken before about Intuitive Surgical (ISRG) - the robotic operation systems company that Wall Street is excited about. It has just reported Q3 revenue growth of 64% and an acceleration in system sales.

Robotic surgery is still in its infancy and ISRG is the leader. So is it good value?

Based on 2008 earnings of $6 per share and a share price of £330 the prospective PE is 55. That is very high but if ISRG can keep growing at a rate above 50% for the next 3 years then it will be worth it.

When the Q2 earnings came out the share price shot up to $200 which looked expensive. No one likes to buy into a company after a huge rise but those that did have made 60% in three months.

Of course ISRG is now expected to beat and raise every quarter and will be punished severely if it disappoints. However it has a monopoly in an new field with high barriers of entry and will probably be relatively untouched by a recession.

Google looked expensive at $300 a couple of years ago and those who bought in have now made 100%. EBay looked expensive at $120 three years ago and those who bought in are still 40% down (taking into account the stock split.)

So it could go either way. But for the patient investor the ISRG share price should be above $600 in 4 years time. That would be 20% annualised growth. Most investors would settle for that.