RMD share price in focus
ResMed was founded in 1989 by Peter Farrell in Australia but is now based in San Diego, California. It is a medical equipment company that provides cloud-connectable continuous positive airway pressure, or CPAP, machines for the treatment of obstructive sleep apnea (OSA). Because of its US home base, ResMed shares have their primary listing on the NYSE but are also listed on the ASX.
ResMed operates on a global scale, with 10,000+ employees and a presence in over 140 countries. It has two primary business units: Sleep and Respiratory Care, and Software as a Service (SaaS). Within Sleep and Respiratory Care, ResMed provides industry-leading CPAP machines for sleep apnea. The Respiratory Care unit covers patients ranging from those who only require therapy from CPAP systems at night to those who are dependent on non-invasive or invasive ventilation for life-support. Within the SaaS unit ResMed provides software that assists durable or home medical equipment (DME/HME). Basically, it assists in out-of-hospital care.
Due to ResMed’s large digital health network powered by its cloud-connected devices, ResMed can leverage its industry-leading hardware (e.g. masks and humidifiers) and its SaaS data to drive insights, improve outcomes and reduce overall healthcare costs.
The case for Healthcare ASX shares
The S&P/ASX200 Healthcare Index (ASX: XHJ) has returned 4.05% per year over the last 5 years. That compares to the average of all ASX sectors of 4.46% over the same period. So, here are some of the reasons that you might want to add a healthcare company like RMD to your watchlist.
Sticky revenue
Most healthcare falls under the category of essential spending. In other words, when times are tough, healthcare spending is one of the last expenses that people will cut.
Healthcare companies are providing an essential service that isn’t affected by commodity prices or seasonal demand, so their revenue tends to be a bit ‘stickier’ than other companies – i.e. it’s more consistent. In fact, healthcare was the best performing sector during the GFC.
Growth potential
In the US, which accounts for more than 40% of global healthcare spending, it’s estimated that healthcare profits will increase 7% per year from 2022 to 2027, reaching US$819 billion.
Healthcare is a rapidly growing sector in general, but within the healthcare sector there are certainly some sub-sectors that stand out. For example, companies providing IT and data solutions and ‘software-as-a-service’ (or SaaS) are expected to grow at more than 15% per year from 2024 to 2030.
The ethical investor
A recent Morgan Stanley survey revealed that more than half of investors plan to increase their allocation to sustainable investments in 2024. With the rising interest in ‘ethical’ or ‘sustainable’ investing, sectors like healthcare that provide important public services could be well placed to benefit.
RMD share price valuation
As a growth company, one way to put a broad estimate on the RMD share price could be to compare its price-to-sales multiple over time. Currently, Resmed CDI shares have a price-sales ratio of 4.86x, compared to its 5-year average of 8.70x, meaning its shares are trading below their historical average. This could mean that the share price has fallen, or sales have increased. In the case of RMD, revenue has been growing over the last 3 years.
Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the RMD share price.
