RMD share price is 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 to treat obstructive sleep apnea (OSA). ResMed shares are listed on both. NYSE And ASX. As the primary listing is in the US, market announcements and reports may look slightly different to other Australian companies as they follow the US format.
ResMed is a global company with 10,000+ employees and a presence in more than 140 countries. It has two primary business units: sleep and respiratory care, and software as a service (SaaS). Industry leading CPAP machines for sleep apnea are provided under the Sleep and Respiratory Care business. This covers patients who require treatment with a CPAP system only at night and those who rely on non-invasive or invasive ventilation for life support. Within the SaaS unit ResMed provides software used in durable or home medical devices (DME/HME). Basically, it helps in out-of-hospital care.
ResMed leverages its industry-leading hardware (such as masks and humidifiers) and its SaaS data to increase insights, improve outcomes and reduce overall healthcare costs.
Key metrics
If you’ve ever tried to read a company’s income statement on an annual report, you know how complicated it can be. Although there are many ways you can break down a statement, there are three main ones. Revenue, Gross Marginand profit.
Revenue is important for obvious reasons – everything else (profits, margins, return on equity, etc.) is downstream of a company’s ability to generate sales and revenue. What we are looking for is not an absolute number, but rather. trend. RMD last reported annual revenue of $4,685m with a Compound Annual Growth Rate (CAGR) 13.6% per annum over the last 3 years.
The next thing we’ll want to look at is gross margin. Gross margin tells us how profitable the underlying products/services are – before you take into account all overhead costs, how much money does the company make selling $100 worth of goods and services? RMD’s most recently reported gross margin was 57.4%.
Finally, we get the profit, the real headline number. Last financial year Resmed CDI reported a profit of $1,021m. This compares to 3 years ago when they made a profit of $475m, representing a CAGR of 29.1%.
Financial health of RMD shares
Next, we can consider Capital Health of the company. What we are trying to work out is whether the company is generating a reasonable return on their equity (total shareholder value) and whether they have a good buffer of safety. There is an important step to consider. Net debt. It is simply the total debt minus the company’s cash holdings.
In the case of RMD, current net debt sits at -$624m. A higher number here means that the company has a lot of debt which potentially means higher interest payments, higher volatility, and higher sensitivity to interest rates. A negative value, on the other hand, indicates that the company has more cash than debt, which can be seen as good (a large safety buffer) or bad (inefficient capital allocation).
A metric that may be more valuable to us. Debt/Equity Percentage. It tells us how much debt the company has compared to shareholder ownership. In other words, how leveraged is the company? Resmed CDI’s debt/equity ratio is 18.0%, which means they have more equity than debt.
Finally, we can see Return on Equity (ROE). ROE tells us how much profit a company is making as a percentage of its total equity – a high number indicates that the company is effectively allocating capital and creating value, while a low number indicates that the company’s growth may be starting to slow. RMD generated an ROE of 22.7% in FY24.
What to do with RMD shares?
As a growth company, one way to make a general forecast on RMD share price might be to compare its price-to-sales multiple over time. Currently, Resmed CDI shares have a price-to-sales ratio of 4.56x, 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 that sales have increased, or both. In case of RMD, the revenue has been increasing for the last 3 years. Please keep in mind that context is important – and this is just one evaluation technique. Investment decisions cannot be based on just one metric.
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.
