Why I Believe the Resmed Share Price Should Be 18% Higher

Investing in stocks often involves navigating fluctuations in share prices, but a rising share price doesn't necessarily mean a company has lost its value. Resmed CDI (ASX: RMD) serves as a prime example of this principle, with its share price making a notable recovery since its October 2023 lows. Despite the significant uptick, there's still ample potential for further gains.


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Resmed's Impressive Recovery

Resmed, a prominent provider of respiratory devices for treating obstructive sleep apnea (OSA), has experienced a remarkable resurgence in its share price. From its lowest point in October 2023 at $21.14, the company's shares have surged by 41% to reach their current level of $29.90. Additionally, Resmed is an ASX healthcare stock.

Valuation and Growth Prospects

While Resmed shares may no longer be trading at bargain basement prices, with a price-to-earnings (P/E) ratio of 32 times FY2024 earnings, the company remains in line with the global medical equipment industry average. Some may argue that there's limited upside potential at this point. However, a deeper analysis suggests otherwise.

The Potential Impact of Drug Innovations

The emergence of glucagon-like peptides (GLP-1) agonists, a medication known for its rapid weight loss effects, has raised questions about its potential impact on the treatment landscape for OSA. While some research indicates that GLP-1s may improve sleep apnea, complete elimination of the condition may remain elusive for many patients.

Resmed's Growth Trajectory

Despite potential disruptions, Resmed stands out as a formidable player in the medical device industry, with a robust product portfolio and a growing market for sleep apnea devices. With an estimated revenue growth of 10% to 12% annually, Resmed's revenue is projected to reach A$9.34 billion by FY2027, accompanied by a net profit after tax (NPAT) of A$1.96 billion.

Future Outlook and Investor Expectations

Looking ahead, Resmed's growth potential remains compelling, fueled by the expanding market for connected devices and ongoing innovation in respiratory healthcare. By FY2029, the company could achieve after-tax profits of A$2.63 billion, potentially leading to a market capitalization of A$70 billion.

Conclusion

In conclusion, Resmed's upward trajectory underscores its resilience and potential for sustained growth. While short-term fluctuations in share prices may occur, the company's strong fundamentals and promising outlook position it as a favorable investment choice for investors seeking long-term value and growth opportunities.
Location: Canada

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