One of those stock is Intuitive Surgical, Inc. (ISRG) and it is now my first position (less than 15%).
The '10 times revenue club' I mention in the title is a reference (maybe, a tribute) to a great post written by William Gurley, general partner at Benchmark Capital, where he warns of the risk of re-playing the mentality in vogue during the 'dot.com' bubble in the late 90s: "(...) Calculating or qualifying potential valuation using the simplistic and crude tool of a revenue multiple (also known as the price/revenue or price/sales ratio) was quite trendy back during the Internet bubble of the late 1990s. Perhaps it is not peculiar that our good friend the price/revenue ratio is back in vogue. But investors and analysts beware; this is a remarkably dangerous technique, because all revenues are not created equal".
Just to contextualize the numbers, I have listed below the average values (here I have used ev/sales in order to correct the numerator, p, or market cap, for the net cash or debt position of each company) for sectors (GICS) represented in the S&P 500:
Consumer Discretionary 1.7, Consumer Staples 1.8, Energy 2.9, Financials 5.0, Health Care 2.3, Industrials 1.6, Information Technology 2.7, Materials 1.8, Telecommunication Services 2.3, Utilities 2.2 --> average value S&P 500 = 2.6So, 'our' ISRG, with its 9.7, is a stock with an ev/sales of 9.7, more than 4 times the average of its sector (health care) and one of the most expensive stock in the entire S&P 500.
But now, before talking about valuation and explain why and if ISRG 'deserve' this kind of valuation, I'll go straight on the recently published 10-K that cover the fiscal year ended December 31, 2011, where I'll detail the most important lines in order to understand the business.
