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.
Let’s talk profits
Annual reports and income statements can be very complex and hard to get your head around as a new investor. While there are any number of figures you could pull from the income statement, three key ones are revenue, gross margin, and profit.
Revenue is sometimes referred to as the ‘top line’ – everything starts here. If you can’t generate revenue, you can’t generate profit. What we’re interested in is not so much the absolute number, but the trend. RMD last reported an annual revenue of $4,685m with a compound annual growth rate (CAGR) over the last 3 years of 13.6% per year.
Gross margin is the next big number on the income statement. The gross margin tells us how profitable the core products/services are – before you take into account all the overhead costs, how much money does the company make from selling $100 worth of goods/services? RMD’s latest reported gross margin was 57.4%.
Finally, the number we’re most interested in – profit. Last financial year Resmed CDI reported a profit of $1,021m. That compares to 3 years ago when they made a profit of $475m, representing a CAGR of 29.1%.
A pulse check on RMD shares
The next thing we need to consider is the capital health of the company. Is the company generating a reasonable return on their equity (the total shareholder value) and do they have a decent safety buffer? One measure we can look at is net debt. This is simply the total debt minus the company’s cash holdings.
In the case of Resmed CDI, the current net debt sits at -$624m. High net debt can mean higher interest payments, greater instability, and higher sensitivity to interest rates. A negative value on the other hand indicates the company has more cash than debt – a good position to be in.
Another figure we can look at is the debt/equity percentage. This tells us how much debt the company has relative to shareholder equity. In other words, how leveraged is the company? RMD has a debt/equity ratio of 18.0%, which means they have more equity than debt.
Finally, we can look at the return on equity (ROE). The ROE tells us how much profit a company is generating as a percentage of its total equity – high numbers indicate the company is generating a lot of value for investors, while a low number raises concerns that capital isn’t necessarily being allocated efficiently. RMD generated an ROE of 22.7% in FY24.
What to make of RMD shares?
With strong revenue growth over the last 3 years, profits trending upwards, and a solid ROE, the RMD share price could be one worth watching in 2025.
Please keep in mind this should only be the beginning of your research. It’s important to get a good grasp of the company’s financials and compare it to its peers. It’s also important to make sure the company is priced fairly. To learn more about share price valuation, you can sign up for one of our many free online investing courses.
