The ResMed Inc (ASX: RMD) share price is down another 9.2% so far today, but there are reasons to remain positive about the healthcare business.
ResMed Inc is a United States based business that develops and manufactures medical devices to help people with sleep apnea, chronic obstructive pulmonary disease (COPD) and other chronic diseases. ResMed, which is short for Respiratory Medicine, was founded in 1989 by Dr Peter Farrell and now helps customers & patients in over 120 countries.
4 Reasons To Remain Bullish About ResMed
1. Valuation
Since the end of close of trade last Thursday, the ResMed Inc share price is down over 20%. If you’re a shareholder that’s not a good thing, but from this price future returns should be stronger because how much lower the valuation is.
Based on ResMed’s result for the six months to 31 December 2018, it’s now valued at under 29 times annualised statutory reported earnings. Last week it was priced at over 36 times.
2. Defensive sector
ResMed operates in the defensive sector of healthcare. The broader healthcare sector has a few useful tailwinds including the aging population and rising levels of health-related issues, which may lead to long term growth.
Governments, patients and insurance providers all want the best outcomes for the patient, so they are usually willing to pay for diagnosis and treatment that works. People still have health problems even during recessions, which is why the healthcare sector provides defensive earnings for shares like ResMed and CSL Limited (ASX: CSL).
3. Sleep apnea has a lot of growth potential
The core focus of ResMed is the diagnosis and treatment of sleep apnea, a disorder that causes your body to stop breathing while you sleep. It’s a potentially fatal condition, with harmful short and long term complications, that affects a third of men and a sixth of women.
With such a large percentage of the population potentially affected this is the possibility of ResMed increasing its software as a service (SaaS) revenue and mask sales as more people become aware of their sleep troubles.
Long term growth of ResMed’s core operations could be a very useful boost to profit over time.
4. US Dollar exposure
ResMed reports its figures in US dollars, it’s primarily listed in the US with a dual-listing on the ASX.
Some economists are predicting that the Aussie Dollar could drop to as low as 60 US cents in the shorter term, which would be very useful for Australian-based investors as that would increase the value in Australian dollar terms.
With the Aussie dollar currently hovering at over 71 US cents, that suggests there is a double digit fall opportunity.
Is ResMed a buy?
ResMed is clearly better value than it was a week ago, although it still isn’t cheap for a business that’s growing at single digits.
The shift towards more software-based services with its acquisitions of MatrixCare and HEALTHCAREfirst
are good signs of earnings diversification and should lead to higher profit margins over time. I think ResMed, along with the exciting growth shares in the free report below, are worth putting on your watchlist.
2 ASX shares growing faster than ResMed
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