What is the stock?
ResMed Inc (RMD) is a global company involved in the development, manufacturing and marketing of medical products for the treatment and management of respiratory disorders, with a focus on sleep-disordered breathing.
How long have you held the stock?
Clients who hold ResMed have held the stock for one to two years.
What do you like about it?
The company has been running at double-digit sales growth for some time. With an extremely strong balance sheet, this is a business that passes many quality filters.
The long-term structural thematic remains for the industry and we believe ResMed will maintain its position as the dominate player in what is undoubtedly a growth market. Although, at the current share price, it sits at a demanding multiple, this is understandable, given the defensive nature of its earnings. Compared to its sector peers, such as Fisher & Paykel Healthcare Corp Ltd (FPH), Cochlear (COH) and CSL (CSL), we still see value moving forward.
How is it better than its competitors?
There is an underappreciated shift towards remote monitoring technology, in which ResMed is a clear leader. ResMed now has more than 5 million cloud-connected patient devices helping to develop a Software as a Service (SaaS) business with an accretive recurring revenue stream.
This enables RMD to improve;
- Doctor/clinician and patient relationship.
- Accuracy of data collection.
- Diagnosis in a less invasive way.
- Willingness of the patient to seek help.
What do you like about its management?
A long-standing management team and board of directors, many of which have been with the business for over a decade, and have substantial share holdings, which align their interests with shareholders.
What is your target price?
The 12-month price target is $16.50.
At what point would you sell it?
With a P/E of over 30, the company needs to continue to deliver. We would sell if we saw meaningful declines in market share and operating margins, or if the share price hit our target in the short term.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
Clients holding the position are up between 20% to 100%.
Where do you see the value?
Long term, the value sits in the company being able grow its customer base in emerging markets. If ResMed continues to take advantage of the large amount of research and development they have been putting into the technology side of their products, they should continue to be the leading provider of products for respiratory disorders.
In addition, the Brightree business continues to solidify itself as a true success story for the business. After being much maligned at the time of acquisition, the SaaS business has gone on to deliver 12% growth for the year.
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