U.S. Markets closed
  • S&P 500

    4,577.11
    -85.74 (-1.84%)
     
  • Dow 30

    35,368.47
    -543.34 (-1.51%)
     
  • Nasdaq

    14,506.90
    -386.86 (-2.60%)
     
  • Russell 2000

    2,096.23
    -66.23 (-3.06%)
     
  • Crude Oil

    86.89
    +1.46 (+1.71%)
     
  • Gold

    1,814.30
    +1.90 (+0.10%)
     
  • Silver

    23.53
    +0.04 (+0.16%)
     
  • EUR/USD

    1.1331
    -0.0079 (-0.6912%)
     
  • 10-Yr Bond

    1.8650
    +0.0930 (+5.25%)
     
  • Vix

    22.79
    +3.60 (+18.76%)
     
  • GBP/USD

    1.3600
    -0.0047 (-0.3454%)
     
  • USD/JPY

    114.5790
    -0.0010 (-0.0009%)
     
  • BTC-USD

    42,453.62
    +232.87 (+0.55%)
     
  • CMC Crypto 200

    1,009.15
    -0.24 (-0.02%)
     
  • FTSE 100

    7,563.55
    -47.68 (-0.63%)
     
  • Nikkei 225

    28,257.25
    -76.27 (-0.27%)
     

Intuitive Surgical, Inc.'s (NASDAQ:ISRG) Stock Has Fared Decently: Is the Market Following Strong Financials?

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Most readers would already know that Intuitive Surgical's (NASDAQ:ISRG) stock increased by 9.2% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Intuitive Surgical's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Intuitive Surgical

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Intuitive Surgical is:

15% = US$1.7b ÷ US$11b (Based on the trailing twelve months to September 2021).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.15 in profit.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Intuitive Surgical's Earnings Growth And 15% ROE

To start with, Intuitive Surgical's ROE looks acceptable. On comparing with the average industry ROE of 11% the company's ROE looks pretty remarkable. This probably laid the ground for Intuitive Surgical's moderate 15% net income growth seen over the past five years.

Next, on 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% in the same period.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Intuitive Surgical's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Intuitive Surgical Using Its Retained Earnings Effectively?

Intuitive Surgical doesn't pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the decent earnings growth number that we discussed above.

Conclusion

Overall, we are quite pleased with Intuitive Surgical's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.