This robotic device company seems like a better choice than Electronic Arts stocks
We believe that Intuitive surgical stock (NASDAQ
In terms of stock returns, EA, with returns of -12% over the past six months, has outperformed ISRG, which is down around 16%, and both have underperformed the broader markets. , with only a 3% decline for the S&P500 index. However, there is more to the comparison, and we think Intuitive Surgical stands out with higher expected returns than Electronic Arts.
1. Intuitive Surgical revenue growth was stronger
- Both companies have managed to see their sales increase in recent quarters. Still, Intuitive Surgical has seen relatively faster revenue growth of 31% over the last twelve months, compared to 15% for Electronic Arts.
- On a longer timeframe, Electronic Arts sales grew at a CAGR of 3.2% to $6.5 billion in the last twelve months, from $5.2 billion in 2018, while Intuitive Surgical sales increased at a CAGR of 16.2% to $5.7 billion. $3.7 billion over the same period.
- Electronic Arts made a wave of acquisitions with Playdemic, Codemasters, Metalhead Software and Glu Mobile
acquisitions announced last year. This should support its revenue growth in the coming quarters.
- Intuitive Surgical’s revenue growth was impacted by the postponement of elective surgeries in 2020 and 2021. Yet, as vaccination rates increase and the total number of Covid-19 cases remains under control, the company can s expect solid revenue growth in the coming quarters. .
- Our Electronic Arts Revenue and Intuitive Surgical Income dashboards provide more detail on business revenue.
- Going forward, Intuitive Surgical’s revenue is expected to grow faster than Electronic Arts’. The table below summarizes our revenue forecast for both companies over the next three years and indicates a CAGR of 14% for Intuitive Surgical, compared to a CAGR of 2% for Electronic Arts.
- Note that we have different methodologies for companies negatively impacted by Covid and for companies not impacted or positively impacted by Covid when forecasting future revenues. For businesses negatively impacted by Covid, we consider the quarterly revenue recovery trajectory to predict recovery at the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed the three years preceding the Covid to simulate the return to normal conditions. For companies with positive revenue growth during Covid, we consider pre-Covid average annual growth with some growth weight during Covid and past twelve months.
2. Intuitive surgery is more cost effective with comparatively lower risk
- Intuitive Surgical’s operating margin of 24% over the last twelve months is much better than Electronic Arts’ 14%.
- This compares to the 20% and 30% figures seen in 2019, before the pandemic.
- Electronic Arts’ operating margins in recent quarters have been impacted by increased investment in R&D as well as higher marketing and sales expenses.
- Our Electronic Arts Operating Income and Intuitive Surgical Operating Income dashboards contain more details.
- When it comes to financial risk, Intuitive Surgical beats Electronic Arts with its best debt and cash flow. Intuitive Surgical’s
3. Filet of Everything
- We see better revenue growth and profitability for Intuitive Surgical. It has a better leverage position and cash cushion compared to Electronic Arts. However, the latter is available at a comparatively lower valuation.
- Now, looking at the outlook, using P/S as a base, due to the large swings in both P/E and P/EBIT, we believe Intuitive Surgical is currently the better choice of the two. The table below summarizes our revenue and return forecasts for EA and ISRG over the next three years and indicates an expected return of 40% for ISRG over this period compared to only 4% expected return for EA shares, which implies investors better buy ISRG on EA, based on Trefis Machine Learning analysis – Electronic arts versus intuitive surgery – which also provides more detail on how we arrive at these numbers.
While ISRG stock may outperform EA, the Covid-19 crisis has created many price discontinuities which may provide interesting trading opportunities. For example, you’ll be surprised how counter-intuitive stock valuation is to Cooper vs. Microsoft
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