Minimally invasive surgery is a big thing in the surgical field now due to better success rates, less human errors, faster recuperation time, less scars, less infections etc. than normal surgery.
The da Vinci surgical system is used by more than 1,500 hospitals worldwide; mainly in the United States though.
The FDA has cleared the da Vinci system for thoracic(chest), cardiac(heart), urologic, gynae, paediatric and otorhinolaryngologic (ENT) surgery in the States.
It is used in world renowned hospitals like Johns Hopkins medical school hospital, New York University medical center, Massachussetts General Hospital, Mayo clinic and locally in SGH and Mt. Elizabeth.
You might remember it being mentioned in ST a couple of years back.
An example of minimally invasive surgery would be removing ovarian cysts through the belly button as done at KK W&CH, or repairing torn rotator cuffs.
The info below has been taken from the US SEC website.
1.) History of Consistently increasing sales, earnings and cash flow
Massive Sales growth from 2009 to 2010. Risen a staggering 25% from 2009 to 2010, and COGS has risen by about the same percentage.
Earnings have increased by a huge 60% from last year.
Cash flow has almost doubled from the same period last year, from 200 million USD to 380 million USD.
2.) Good competitive advantage
The da Vinci surgical system is protected by a multitude of patents, plus, there aren't any competitors now.
Even if there's a new upstart, the HUGE switching costs for Hospitals (a few million dollars) will ensure it's economic moat.
The davinci system also has many instruments which are disposable after every surgery, much like a needle is one use only, and a substantial part of it's growth has come out of sales of complementary instruments (37% of total sales). You can compare it to a razor blade and it's handle, or an electric toothbrush and it's changeable head. Eventually, once more and more hospitals adopt this system, the instrument market might make up a sizeable part of revenue for ISRG.
In addition, surgeons, once familiar with a certain system, loathe to change and hence create a status quo which will benefit ISRG.
3.) Future growth drivers
The large baby boomer generation is getting along in age, and with age comes illness.
Greying of the world's developed nations will ensure the demand for surgery.
80% of DVS is in the United States, and other developed nations' hospitals will be future growth drivers for this system.
Deteriorating health amongst developed countries also provide growth.
5.) ROE above average
Return on Equity is about 17%, above average.
6.) Senior management staff are holding, buying the stock
Senior Management owns only 1% of stock, and institutional owners own 89% of stock.
Management have been selling the stock since Feb 2009, and have only recently been buying up the stock since November 2010.
7.) Debt Level
Debt is at a manageable USD 130 million level. Profit to date for 3Q 2010 has already been 260 mil, so debt is low.
When to Buy:
1.) Undervalued
This stock is close to 52 week lows, but PE ratio is at a high 30x, forward PE is 25x but with such phenomenal high growth rates which do seem sustainable for the coming 2-3 years, the PEG is at 1.25-1.5 times, which is pretty average for a high growth stock.
2.) Stock price in consolidation phase/ uptrend
It looks like there's recently been a descending triangle, and moreover current stock price is at resistance.
My conclusion:
Exciting growth stock with low analyst coverage but high growth mutual fund ownership.
High valuations but it's to be expected for growth stocks as such.
Good company with good fundamentals, low debt, huge economic moat, very large growth drivers esp. with the greying of America and the industrialised western countries in years to come. (From 2012 to 2020, the baby boomers will be retiring en masse)
From forums and websites, Doctors and hospital workers have said good things and have good reviews for this system, which indicates customer support.
However, negatives include low insider ownership, overly specialised field (high tech surgery mostly done in rich countries), one product company and low-mid capitalization, and high valuations for stock.
One product company is probably the most concerning because what if one day a really great competitor comes up? Hence, should I buy this company, I will have a short holding period of probably 1-5 years.
Next Steps: Stock is currently at resistance, and even though I only want to buy around 3-6 shares (1 share is $269.00), every penny saved can't hurt right? Also, I'd wait for a consolidation period to occur and for this downtrend to cease before buying.
Target price for entering will probably be slightly higher than the 52-week low(USD246.05) at USD250 to USD 260.
Target holding period: 1-4 years, or when valuations are ridiculously high.
You have been to Adam Khoo's WA course before right? The way you analyse if how Adam Khoo teaches in his course.
ReplyDeletehi FFN,
ReplyDeletenope, I haven't, don't see the need to haha. But I've read his books and his way is the simplest and least time consuming. I've read ways in which like Philip Fisher does his FA and it's way over my head. haha