That said, one company which fits the description of a seemingly expensive company but has a good valuation and long-term prospects is Nasdaq-listed Intuitive Surgical. Intuitive Surgical is a US$145 billion ($188 billion) company that designs, develops, manufactures and sells surgical and endoluminal systems. The company’s flagship products are the da Vinci surgical and Ion endoluminal systems.
Intuitively, companies with a strategic business model, a consistent financial track record, strong business prospects, and positive sentiment are likely to be expensive. However, unless these companies are trading at overwhelmingly high expectations, as with certain AI stocks, these businesses may be a good long-term buy and are expected to outperform the broader stock market.
One way to assess these seemingly expensive companies is to look beyond simple ratios that indicate they are overpriced. Two simple key ratios that most investors use are the price-to-earnings (P/E) and price-to-book (P/B) ratios. Firstly, these two ratios may not reflect the company’s true valuation. Secondly, these ratios may be used and interpreted incorrectly when determining the company’s valuation.
