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Why Resmed Is Up 11.7% Today?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Resmed (ASX: RMD) rallied today, on the back of positive quarterly results that highlighted the success of the company’s strategy. The business recorded revenue growth of 16% and profit growth of 22%, both of which were above market expectations. The particularly bright spot, however, lies in software as a service revenue growth, which came in at 83%. The SAAS business provides a higher quality recurring revenue stream, so the fact that it makes it up a growing share of the business improves the overall earnings profile of Resmed. This has caused a multiple expansion in Resmed, partially explaining why the share price has been outpacing earnings for some time. SAAS companies often trade on revenue multiples, and Resmed would look cheap relative to peers with similar growth rates and competitive moats if it was priced purely as a healthcare SAAS business.

Resmed - up report
Resmed (ASX: RMD) Airsense sleep apnea product (Credit: CPAP Clinic)

Resmed was one of the first companies to develop advanced solutions that keep people out of hospitals and empower them to live healthy, high-quality lives. While the products mainly focus on COPD and sleep apnea, they also cater to a range of other sleeping conditions. Sleep apnea is a sleeping disorder that results in breathing stopping and starting throughout the night, disrupting the body’s natural sleep patterns. It typically manifests itself through loud snoring and the sufferer waking up tired after a full night’s sleep.

The company has a large market opportunity that is open to it since more than 80% of sleep apnea cases are undiagnosed. While not all these people would purchase a Resmed product if they understood the benefits, it would open up new sales prospects that would not have previously engaged with the business. The company has benefitted from effective marketing and sales execution to exploit the opportunity, and this will need to continue for the company to justify current multiples.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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