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 appeal of Healthcare ASX shares
The S&P/ASX200 Healthcare Index (ASX: XHJ) has returned 2.24% per year over the last 5 years compared to 4.80% per year from the broader ASX 200. Here are three key reasons to consider adding a healthcare company like RMD to your investing watchlist.
Sticky revenue
Healthcare spending (in most cases) is essential spending, making it one of the last areas people cut back on during tough economic times.
Unlike cyclical businesses affected by commodity prices or seasonal demand, healthcare companies benefit from stable and consistent revenue streams. We sometimes call this ‘sticky’ revenue. Evidence of this fact is that healthcare was the best performing sector during the GFC.
Growth potential
Global healthcare spending, particularly in the US – which accounts for over 40% of the global total – is projected to grow significantly. Estimates for the US are 7% per year from 2022 to 2027, reaching US$819 billion.
Within the broad sector of healthcare, certain sub-sectors stand out for their additional growth potential. For example, healthcare IT, data solutions, and ‘software-as-a-service’ (or SaaS) companies are forecast to grow at more than 15% per year from 2024 to 2030, a rate that would get most investors interested.
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 growing interest in ‘ethical’ and ‘sustainable’ investing, sectors like healthcare that provide essential public services are well-positioned to attract new capital and investors.
RMD share price valuation
As a growth company, one way to put a rough forecast 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 5.13x, 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.
