ResMed is in a good spot to gain market share in the sleep apnea and COPD markets.
Over the past 5 years, revenues have been growing steadily. Growth rates for the company are as follows:
- 2018: 13.2%
- 2019: 11.4%
- 2020: 13.4%
- 2021: 8.1%
- 2022: 11.9%
Gross margins have been impressive and steady too, hovering around the 57-59% range.
The financials appear healthy. Cash flows are impressive and the company pays a modest 0.82% dividend. So is ResMed stock a buy?
- ResMed is well-positioned to gain market share in the sleep apnea and COPD markets, which are large and growing.
- It has experienced steady revenue growth over the past five years, with growth rates ranging from 8.1% to 13.4%. The company has impressive and steady gross margins in the 57-59% range, strong cash flows, and pays a modest dividend.
- ResMed has a strong brand, a diversified product portfolio, and a wide moat but also a lofty valuation with a P/E of 38.8x.
The Bull Case for ResMed
ResMed offers continuous positive airway pressure (CPAP) machines, masks, and accessories, as well as digital health solutions such as cloud-based software platforms, patient management systems, and remote monitoring tools.
Its core market of sleep apnea is large and growing. Technavio calculates the global sleep apnea market will grow at 7% annually through 2025.
Furthering the bull thesis, the company has established a strong brand and a diversified portfolio with a wide moat and a presence in 140 countries. It has also been investing heavily in digital health solutions, which offer significant growth potential and ongoing revenue streams.
When we ran the numbers it became clear that this medical device and cloud-based software apps company had already delivered to its shareholders. Over its lifespan as a publicly traded company it has delivered an astonishing return of 31,785%.
But the past is the past, will it continue to deliver outsized gains for shareholders?
Is RMD a Buy or Sell?
While there is lots to like about ResMed, it is currently trading a high valuation with a P/E of 38.8x and running a discounted cash flow forecast analysis resulted in fair value of $202 per share, which is about 5% lower than where the share price currently resides.
With that said analysts are slightly more bullish about the prospects for ResMed. 9 analysts have a consensus target of $256.44 per share, which would result in close to 40% upside.
With revenue of $3.7 billion and net income of $809 million, the company is doing a lot right. The balance sheet looks healthy too. If you’re wondering does RMD have debt, the answer is $765 million of long-term debt. It also has $273 million of cash on the books.
With that said, a great company needs to be bought at a good price for shareholders to win over time and, for now, we think ResMed needs to come down in price to make its margin of safety more attractive.
Weighing up the pros and the cons, is ResMed a good stock? Our conclusion is the company has a proven track record of delivering for shareholders and will likely continue doing so. Its financial statements all look good but the one drawback is its lofty valuation. As such, we would put the stock on a watchlist before buying it outright.
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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.