If you’re looking for growth in your portfolio, you may have considered ResMed Inc (ASX: RMD) or Ramsay Health Care Limited (ASX: RHC). Here’s which one I would pick.
About ResMed And Ramsay
ResMed is a United States-based business that develops and manufactures medical devices to help people with sleep apnoea, 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.
Ramsay Health Care is the largest private hospital operator in Australia, Scandinavia and France, and also has a major presence in the UK. Ramsay has been operating for more than 50 years, having been started by Paul Ramsay AO in 1964. The company has 480 facilities across 11 countries with 77,000 staff, annually treating around 8.5 million patients.
Similarities And Differences
Before looking at some of the numbers, it’s important to note that ResMed is a far larger company than Ramsay Health Care, with a market cap of approximately $27.8 billion versus $13.9 billion.
So, it may be surprising to hear that in FY19, Ramsay Health Care brought in $11.4 billion in revenue compared to US$2.6 billion for ResMed. Ramsay Health Care also had stronger growth revenue growth, up 24.4% on FY18 while ResMed saw 11% growth.
ResMed is a more profitable business with higher margins, earning a net profit after tax (NPAT) of US$404.59 million on its smaller amount of revenue, while Ramsay Health Care reported NPAT of $572.39 million. The video below explains revenue versus profit.
Ramsay Health Care did, however, achieve a much higher growth rate on its NPAT of 39.2% compared to 28.2% for ResMed.
Ramsay Health Care had total assets of $12.5 billion in FY19 compared to $4.1 billion for ResMed, however, Ramsay holds more debt on its balance sheet.
Both businesses earn very high returns on equity (ROE), but Ramsay Health Care had a slightly higher ROE in FY19 (24% versus 22.4%).
Looking at the financials, it would appear that Ramsay Health Care could actually be considered a better business in a lot of ways. ResMed has better margins but Ramsay has higher growth and they both have similar returns on equity.
The biggest difference is not in the financial statements but in the price-earnings (P/E) ratio. ResMed shares currently trade on a P/E ratio of around 48.8 times, while Ramsay Health Care shares trade on a ratio of 25.8 times.
To top it all off, ResMed shares offer an unfranked dividend yield of 0.76%, while Ramsay shares pay a fully franked dividend and offer a trailing yield of 2.21%.
Which Is Better Value?
To be clear, both ResMed and Ramsay are great businesses with strong fundamentals, but the question is which provides better value. Based on the results above, it would have to be Ramsay Health Care, although keep in mind this is just a rough comparison based on one year of results.
For other high growth share ideas paying big dividends, check out the companies in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
