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2 ASX shares I can’t ignore: RMD and WOW

The Resmed CDI (ASX:RMD) share price has increased 4.7% since the start of the 2024. It's probably worth asking, 'is the RMD share price priced to perfection?'
The Resmed CDI (ASX:RMD) share price has increased 4.7% since the start of the 2024. Meanwhile, the Woolworths Group Ltd (ASX:WOW) share price is 19% away from its 52-week high.

RMD share price

Resmed was founded in 1989 by Peter Farrell in Australia but is now based in San Diego, California. It is a medical equipment company that provides cloud-connectable continuous positive airway pressure, or CPAP, machines for the treatment of obstructive sleep apnea (OSA). If Resmed’s name or financial reports look different it’s because Resmed’s ASX shares are CDIs and its primary listing is the NYSE.

Resmed operates on a global scale, 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). Within Sleep and Respiratory Care, ResMed provides industry-leading CPAP machines for sleep apnea. Other devices are often marketed in this space but CPAP is the most effective therapy for all severities of OSA. The Respiratory Care unit 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 providers that assists durable or home medical equipment (DME/HME). Basically, it assists in out-of-hospital care.

Due to Resmed’s large digital health network powered by its cloud-connected devices, Resmed can leverage its industry-leading hardware (e.g. masks and humidifiers) and its SaaS data to drive insights, improve outcomes and reduce overall healthcare costs.

While it may be large, Resmed CDI is a growth stock, and so it requires a different set of rules and may not be simple hard to value, at times. Studies have shown that over 5-10+ years, it’s top-line revenue growth which explains a stock’s performance. That’s why it’s good to see Resmed CDI is able to growth revenue at 12.6%, a good clip.

WOW share price

Founded in 1924, Woolworths is a retail operator in Australia and New Zealand with over 3,000 stores and over 100,000 employees. It is currently the Australia’s largest company in terms of revenue and market share.

Woolworths’ main operations include supermarkets (under the Woolworths brand in Australia and Countdown in New Zealand), retailing through its discount department stores under the Big W brand, and business-to-business (B2B) brands like PFD. Overwhelmingly, it’s 35%+ share of Australian supermarkets is its crown jewel.

Woolworths is a very popular choice for many ASX investors seeking dividend income. It consistently pays a fully franked dividend, usually at a yield of over 3%, and offers a very defensive earnings stream. It’s competitive advantage is probably best summarised as scale (distribution, low costs, etc.) and proximity (most shoppers still shop based on distance to the supermarket).

Share price valuation

As a growth company, the 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 4.94x, which compares to its 5-year average of 7.81x, meaning its shares are trading below their historical average. Please keep in mind that context is important – and this is just one valuation technique. I wouldn’t make a decision based on one metric.

Since it is a more mature-style business, the WOW share price is offering a historical dividend yield of around 3.20%, which compares to its 5-year average of 2.66%. The Rask websites, especially our Rask Education platform, offer free tutorials explaining Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). Both of these models would be a better way to value the WOW share price.

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