ISRG Stock Down More than 13% in 3 Months: How to Play the Stock?

Core Viewpoint - Intuitive Surgical (ISRG) has experienced a decline in share price despite reporting better-than-expected financial results, primarily due to concerns over gross margin contraction and increased competition in the robotic surgery market [1][3][24]. Financial Performance - ISRG shares have lost 13.4% in the past three months, underperforming the industry and the S&P 500 Index, which rose by 0.1% and 10.4%, respectively [1]. - The company reported an adjusted gross profit of $1.66 billion, up 17.8% year over year, but the gross margin decreased to 67.9%, down approximately 200 basis points from the prior-year quarter [15]. - ISRG forecasts a gross margin contraction of 200-300 basis points for 2025, influenced by tariffs and product mix shifts [6][15]. Market Position and Growth Drivers - ISRG is a leader in the robotic-assisted surgery market, with its da Vinci systems dominating both the U.S. and global markets [8]. - The global surgical robots market is expected to grow at a CAGR of nearly 9.4% from 2025 to 2030, positioning ISRG to benefit from this growth [8]. - The company has raised its full-year 2025 procedure growth guidance to 15.5-17%, driven by increased demand for various surgical procedures [11]. Revenue Composition - Recurring revenues from the sale of accessories accounted for 85% of total sales in the first half of 2025, highlighting the importance of instruments and accessories [13]. - Revenue per procedure remained stable at approximately $1,780-$1,800, despite pressures from declining bariatric surgeries [13]. Competitive Landscape - ISRG faces increasing competition from major players like Medtronic and Johnson & Johnson, which are introducing cost-effective and modular robotic systems [21][22]. - Medtronic's Hugo system and J&J's Ottava system are expected to gain traction in the U.S. market, posing challenges to ISRG's market share [22][23]. Challenges - The company is experiencing moderating growth in bariatric procedures due to the introduction of new drugs targeting obesity, which may impact future top-line growth [18]. - Budget constraints in international markets are limiting the adoption of da Vinci systems, particularly in developing regions [19][20]. - Macroeconomic pressures and rising inflation are forcing governments to prioritize essential healthcare over capital-intensive robotic platforms [20]. Valuation - ISRG is considered overvalued, with a forward 12-month Price/Earnings (P/E) ratio of 50.56, significantly higher than the sector average of 27.51 [24].