For context, ResMed makes CPAP machines and connected devices for people with sleep apnea and other respiratory conditions. Not exactly a dinner party stock but the business underneath is genuinely interesting.
here's what my screen showed:
ROIC: 20.1% (5yr avg: 18.6%)
FCF margin: 26.1%
Gross margin: 62.2%
Net margin: 27.4%
Revenue CAGR 5yr: 11.7%
P/E: 19.7x
Fair value estimate: ~$225 (using 9% discount rate)
Current price: ~$203
So first thing that stands out is 20% ROIC, that's been consistent for years and not a one year spike. that's a genuinely durable business, not a cycle play.
Then they reported earnings last week. Revenue up 11% year over year, gross margin expanded 290 basis points, and EPS up 21%. Solid across the board and the stock dropped 6.7% due to CFO transition news, however, the business itself is fine. The market sold off a genuinely good quarter because of an executive transition that happens at basically every large company at some point.
The AI narrative is interesting as there's been a lot of fear that GLP-1 drugs like Ozempic will reduce sleep apnea rates as people lose weight and hurt ResMed's addressable market but here's the counterintuitive part: sleep apnea is massively underdiagnosed. Estimates suggest something like 80% of people who have it don't know it. As AI-powered diagnostic tools get better and more accessible, the diagnosed population could actually expand faster than GLP-1 drugs shrink it. ResMed's connected device platform also generates recurring software and data revenue that gets more valuable over time, not less.
idk, i could be wrong on the GLP-1 thing as it's genuinely hard to model but at 19.7x earnings for a business with 20% ROIC, expanding margins, and consistent FCF generation, it feels like the market is pricing in a worst case that may not materialize.
Some concerns I have are the CFO transition is worth monitoring. Brett Sandercock had been there a long time and continuity matters. Also, international revenue growth has been a bit lumpy recently which is worth keeping an eye on.
anyone here follow ResMed closely? curious how you're thinking about the GLP-1 impact and whether the diagnostic expansion thesis holds up.
ResMed beat earnings and dropped 6%. Ran the fundamentals and I think the market is missing something here.
byu/HotDoor4125 instocks
Posted by HotDoor4125
4 Comments
I tried to sell a company to Resmed once. After speaking to the board I have decided to never invest in a single thing that those people touch.
Its just like any other ER. They do whatv they want. 🤷♂️
Sometimes.
Thanks for the thoughtful post. I added a small amount last winter, and it’s down about 16%.
I personally am going to stick with it. It still seems to me like a pretty good long-term hold. Their financials show steady growth in both revenue and profit. And like you I tend to think the threat of GLP-1s to their business is overblown. My guess is GLP-1s lessen apnea but don’t cure it outright, and there will still be growing demand for ResMed‘s product.
20x earnings for steady business seems fairly valued — your fair value estimate is $225, and Schwab is showing AH price at $205, so maybe it’s 10% undervalued. On the other hand, 19.7x P/E with a 10-12% growth gets you a 1.8 PEG ratio, which suggests it’s overvalued. (Morningstar values it at $290 btw.)
All in all, not a lot of upside if you’re comparing to tech stocks, but I can see an argument for this in a value portfolio (like many med device companies).