This article is sponsored by mental health awareness campaign, Swear2Care!
About ResMed
Sleep apnea is a health issue that has been plaguing those around the world for somewhere in the neighborhood of 2,000 years, inhibiting folks around the world from fully resting and reaching their optimal day-to-day performance, but really, the problem lies in the process of sleeping itself.
Sleep apnea is generally defined as a sleeping disorder where breathing is repeatedly interrupted, uncontrollably stopping and starting, and going on too long without having it treated can lead to irreparable and even fatal consequences.
Thankfully, while this is still an issue that has and likely will continue negatively impacting millions upon millions worldwide, some can sleep better at night (literally) knowing that a company such as San Diego, California-headquartered, ResMed, is on a mission of helping those that suffer with and from sleep apnea.
Specifically, the company specializes in the manufacturing, production and sale of continuous positive airway pressure (CPAP) machines and related products that assist in treating sleep apnea, particularly in filtering and appropriately pressurizing the air in and around someone while they are asleep, essentially sending airflow into one’s lungs through the tube attached to one’s mask while they are sleeping.
Not only does ResMed specialize in these machines, but the company also has made substantial moves into the technology side of the business, primarily with the notable implementation of the Cloud as can be seen through its mobile app, which connects with and draws data from one’s CPAP machine, assisting them in simply putting together and setting up the machine to offering them tangible, easy to understand data regarding their sleep that they could perhaps take to their primary care physician in hopes of helping them resolve their battle with sleep apnea once and for all.
From the machine itself, the mask and the other related components, ResMed has seemingly helped a lot of people and we commend them for that, as we can’t even begin to imagine how severe and taxing sleep apnea is for anyone and everyone who struggles with the disorder.
Of course, while ResMed is one of the larger operators within the field, it does have its fair share of competition including (but not limited to) the likes of Philips Respironics, Invacare, Fisher & Paykel, among a few others, which is simply something to keep in mind as we venture forth into our analysis of this company and its core financials.
It is also worth noting that the sad fact of the matter is that regardless of the state of the economy, those struggling with sleep apnea will more than likely prioritize purchasing a CPAP device more than they will other essentials or even consumer discretionary products they enjoy, which, objectively speaking, bodes well for a company such as ResMed, as there isn’t really a sales cycle, per se, but rather just millions upon millions that synchronously struggle from and grapple with sleep apnea on a daily basis that are probably willing to pay a decent amount for some form of relief in their sleep, perhaps through one of ResMed’s machines.
Ultimately, if we could live in an ideal world that didn’t have these aforementioned issues, that would be great, however, need I even point out that the world we live in is far from perfect and thus the need for this company’s products.
So, that’s a little bit on ResMed and now seems like a great time to learn more about this company from a more objective, financial perspective.
Numbers, incoming!
ResMed’s stock financials
In kicking things off financially speaking with ResMed, the company presently maintains a market capitalization of $22.1 billion and is accompanied by a share price of $150.22 along with a price-to-earnings (P/E) ratio of 23.94 while also dishing out an annual dividend of $1.96 to its shareholder base.
Given this preliminary financial data, things aren’t off to the roughest of starts with ResMed as its shares of stock seem to be trading at a slight-to-modest premium, referencing its current price-to-earnings ratio and the commonly held fact that a P/E of 20 implies that a company’s stock is trading at exactly fair value and subsequently anything greater than this benchmark indicates that is trading at a premium (i.e., is overvalued), which isn’t all that bad, that is, if the company is experiencing some form of recent, recurring year-over-year (YOY) revenue growth to support a premium share price.
Additionally, it is nice to find that the company offers its shareholders an annual dividend of nearly $2.00 per share, not to mention the fact that it can probably afford to pay this out annually to each of its outstanding shares of stock (NYSE: RMD) given that it is a well established medical device company that can more than likely churn out cash with little to no issues, however, assumptions be darned, as it would serve us better if we gained some more concrete, objective familiarity out of this company and its core financials to take a large step closer in determining whether or not this is actually the case.
With respect to the company’s balance sheet, ResMed’s executives are at the helm of around $6.75 billion in terms of total assets along with just about $2.6 billion in terms of total liabilities, which is simply an overall great balance sheet structure and total asset-total liability breakdown, as this established sleep apnea device company has far more total assets than it does total liabilities, speaking highly of its capitalization and opportunities moving forward in terms of being able to finance new internal initiatives as well as continuously pursue potential acquisition targets it might want to add to its portfolio of products and sleep apnea solutions.
As it relates to the company’s income statement, ResMed’s total annual revenues (referencing since 2019) have actually (to our surprise, really) been growing on a year-over-year basis, and at a rather brisk pace at that, with, for instance, the company’s revenue standing at just north of $2.6 billion in 2019, rising the following year to $2.9 billion, almost $3.2 billion in 2021, $3.5 billion in 2022, leading all the way up to its latest reported figure of $4.2 billion, as reported and displayed in June 2023.
This is one of the few somewhat rare instances in which a seasoned company (founded in 1989) has continued growing its top-line, even amidst the multitude of supply chain challenges and the COVID-19-induced pressures strained on nearly every industry worldwide, which, suffice it to say, is incredibly impressive and on this basis alone, from my perspective, justifies paying a slight premium one would be required to pay at the moment for an ownership stake in this company through its stock (NYSE: RMD).
Two of the primary ways in which I imagine ResMed is growing its revenues is through a combination of price hikes as well as continued demand for this company’s products, sadly, for humanity that is, however, an objective continued catalyst for prospective shareholders.
Onto the company’s cash flow statement, extracting cash out of its operations evidently isn’t a major issue for ResMed, as its total cash from operations (also referencing between 2019 and 2023) have remained positive each year, ranging between relatives lows and highs of $351 million (2022) and $802 million (2020) and given the state of the supply chain and other prevailing headwinds during these eras, we are simply glad that the company’s total cash from operations as well as its net income remained positive and at times even grew throughout this timeframe.
ResMed’s stock fundamentals
A spot near the top of an entire industry usually comes with its fair share of perks, one of which usually includes a competitive trailing twelve month (TTM) net profit margin as it relates to the competition (on average) and in the case of ResMed, one should be inclined to change the word “usually” to “certainly.”
Specifically, according to the figures displayed on TD Ameritrade’s platform, ResMed’s TTM net profit margin towers over the industry’s average at 21.25%, with the industry’s relative average sitting substantially lower at 5.30%, indicating that this company maintains a fair bit of pricing power and market share in relation to the competition, which, given the aforementioned competitors it goes up against, is no small accomplishment.
Onto the company’s TTM returns on both assets and investment(s), ResMed has once again found itself in an ultra-competitive state, as its TTM returns on assets and investment(s) stand at 15.15% and 17.26% whereas the industry’s averages sit well below at 4.52% and 5.13%, respectively.
Not only does it appear as though ResMed does a resoundingly better job at generating cash, but it is also seemingly does an excellent job in producing returns on the assets it deploys and the investments it makes, solidifying the fact that this company has carved out quite a solid track record for itself, leaving future doubt of continued success on these fronts on the curb for the most part (as this is all is simply referencing history, and the present nor history is always a perfect indicator of future outcomes), where it apparently belongs.
Should you buy ResMed stock?
ResMed is a company that is on trend with a problem millions are afflicted with on a daily basis.
Through its machines and other products, it seems like it does a lot of good and it also seems to be the case that it can also do well by its shareholders moving forward given the strength of its core figures.
With a balance sheet that is in battle-ready condition, an annually growing top-line (i.e., revenues), an exceedingly swell TTM net profit margin with respect to the average of its competitors and an inherently recession resistant business model given that more and more are being negatively impacted by sleep apnea, ResMed is in a fine position to reap the benefits through helping those it serves.
Given all of the data, information and other relevant findings we dug up in this stock analysis article, we think it makes the most sense to offer this company’s stock (NYSE: RMD) a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.