Intuitive Surgical Just Posted a Solid Quarter, but This Is Why the Stock Could Be in Trouble This Year

Intuitive Surgical (NASDAQ: ISRG) should arguably be doing a whole lot better after coming off the release of some strong earnings numbers. Business is doing well, the growth rate is solid, and in the long run, the company has a lot of potential. Its da Vinci surgical devices can be game changers in the healthcare industry in assisting surgeons with complex medical procedures.

But despite all the bullish reasons to be optimistic about the company, the stock has been trading lower since it posted its latest earnings numbers on Jan. 23. The issue at hand relates to the threat of a trade war, which could adversely affect Intuitive's business.

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Effects from tariffs could be significant

Intuitive released its fourth-quarter earnings numbers last month. Sales for the final three months of 2024 totaled $2.4 billion, which were up 25% year over year. The number of da Vinci procedures also rose by 18%. Another key metric is the number of da Vinci surgical systems installed. That also increased by 15%, totaling 9,902 systems as of the end of the year.

All in all, there was some solid growth for the company during the past quarter. But the one big wrinkle is what management said on its earnings call, which was that the threat of tariffs could have a "material impact" for the company. That's accounting-speak for saying that there would be a noticeable decline in its numbers, particularly with respect to margins and overall profitability. Jamie Samath, the company's chief financial officer, says that a "significant portion" of its instruments are made in Mexico.

There wasn't a guidance to say what its earnings numbers might look like under the 25% tariffs that President Donald Trump has proposed imposing on Mexico, but it clearly has investors rattled. Trump has also targeted Canada and other countries with tariff threats, and another potential risk is that retaliatory tariffs may affect demand for Intuitive's systems in markets outside the U.S.

Investors should brace for volatility

Tariffs can be bad news for a lot of businesses, as an increase in costs will likely be passed on to consumers, who have already been dealing with high inflation for years. If inflation goes higher, that may reduce the likelihood that interest rates will come down this year, as the Fed has used rates to help control inflation.

Between a possible negative effect on Intuitive's margins due to tariffs and worsening economic conditions, it's not hard to see why there may not be as much optimism around the healthcare company in the near term. Although the new hope is that the tariffs may prove to be short-lived, the new president seems to be adamant in relying on them, as he plans to create an external revenue service which will be responsible for collecting them.

Tariffs aren't likely going to have a positive effect on Intuitive, or on the stock market as a whole, and that's a risk that investors are clearly adjusting to.

Is Intuitive a good stock to buy on weakness?

If you are planning to invest for the long term, then the threat of tariffs shouldn't dissuade you from investing in a good growth stock like Intuitive. Policies can change drastically from one administration to the next, and as long as you're planning on holding an investment for at least five-plus years, the threat of tariffs shouldn't weigh too heavily on your decision to buy or sell a stock.

Intuitive has a lot of promising growth potential, and it can be a strong investment to hang on to in your portfolio -- provided you're willing to be patient. At a price-to-earnings multiple of around 90, a lot of future growth is likely already priced into its current valuation, and that can make the stock vulnerable to more of a decline in the weeks and months ahead. But if you're willing to hold on for the long haul, this can still be a potentially good buy right now.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.