RMD share price in focus
ResMed is a medical equipment company based in San Diego, California, but originally founded in Australia by Peter Farrell. The company provides cloud-connectable continuous positive airway pressure, or CPAP, machines for the treatment of obstructive sleep apnea (OSA). ResMed shares a listed both on the NYSE and the ASX. Because the primary listing is in the US, the market announcements and reports might look a bit different to other Australian companies as they follow the US format.
ResMed is a global company 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). The industry-leading CPAP machines for sleep apnea are provided under the Sleep and Respiratory Care business. This 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.
ResMed leverages its industry-leading hardware (e.g. masks and humidifiers) and its SaaS data to drive insights, improve outcomes and reduce overall healthcare costs.
The key metrics
If you’ve ever tried to read a company’s income statement on the annual report, you’ll know it can get pretty complex. While there are any number of figures you could pull from this statement, three key ones are revenue, gross margin, and profit.
Revenue is important for obvious reasons – everything starts here. If you can’t generate revenue, you can’t generate profit. What we’re concerned about 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.
Moving down the income statement, we then get to gross margin. 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 or services? RMD’s latest reported gross margin was 57.4%.
Finally, we get to profit, arguably the most important figure. 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%.
Financial health of RMD shares
The next thing we need to consider is the capital ‘health’ of the company. What we’re trying to assess here is whether they’re generating a reasonable return on their equity (the total shareholder value) and 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 RMD, the current net debt sits at -$624m.
A high number here means that a company has a lot of debt which potentially means 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 useful safety buffer).
However, arguably more important is the debt/equity percentage. This tells us how much debt the company has relative to shareholder ownership. 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 allocating capital well and generating value, while a low number suggests the profits might offer more value if they were paid to shareholders as a dividend. 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, RMD shares could be worth adding to your ASX share price watchlist.
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.
