Intuitive Surgical, Inc. (ISRG)

I've seen one of the Da Vinci robots at work. It's weird at first, but the results don't lie. And the quicker healing time is true.

Therer are two tricky things about Intuitive Surgical as a stock:

1.) Valuing its P/E ratio. ISRG been all over the map in the past 10 years. And the current forward P/E of 56 seems too much.

2.) How much can we believe the analyst growth estimates? 36.8% in 5 years is a phenominal growth rate if a business can achieve it.

Still, doctors say they want the surgical robots that ISRG makes. Whether hospitals will pony up the big bucks for them is another question. There is still some question about insurance paying for them in surgery as well. If these concerns are resolved, then ISRG could go even higher than the estimates.

For ISRG to earn a 15% compunded annual return from the $286 per share level (which is probably where it will open on Tuesday May 27th), it will have to be worth at least $575 per share in five years. Which if the estimates are correct, it should not have a problem getting to that value.

Now for argument's sake, let's assume that the estimates are correct and the company grows its EPS at 36.8% for the next 5 years. We'll use a P/E of 40 because I don't trust P/E's of 50+ on any company, and I'm even hesitant to use 40. That put's today's sticker price at $400, if you want at least a 15% compunded annual return. So we're getting a 28.5% discount as of May 23rd.

Both Jon and Pete Najarian at OptionMonster.com & Fast Money love this business, and have their father as a doctor to help back them up on the medical side.

The technicals seem to vote against buying in now for a short-term trade:

1.) ISRG is below both its 10 day and 50 day moving averages
2.) The Slow Stoc. Oscill. is oversold and trending downward still, but it's nearing a point where it should turn
3.) The MACD 12-26-9 divergence is negative, and below 0.

The one short term reason to buy into this is the news from S&P that came late last week that ISRG is going to replace BSC in the S&P 500. That sent shares up $10 Friday, May 23rd.

Long term, this business seems like it's a buy to me. But I have a sneaking suspicion that the price may fall more before the next earnings report. Gut feeling, nothing else. Mr. Market is fickle as we well know.