ResMed designs and manufacturers medical devices for the treatment of sleep apnea and chronic breathing conditions.
ResmedNovember 08, 2020
Thesis - Resmed is a leading provider of medical devices that help you breathe (and sleep) better. They treat conditions such as sleep apnea through continuous positive airway (CPAP) machines. Essentially these are small electronic devices that sit on your bedside table and connect to your mouth via a hose and mask, pumping air through the airways. They estimate 40-60m Americans suffer from these respiratory conditions, with less than 10% currently being treated. For their core business, they can expend continued growth. In addition, management are changing the story of this company by adding a software component. Through their devices, the companies can collect breathing and sleeping data which they analyse and expose via a suite of connected apps (think a sleep score via your phone). This software business has grown in the last few years and now represents 12% of revenues. Overall, this company is a play on the positive health impacts of better sleep and with an increased body of research supporting sleep in health, this could be a long term winner.
Financials & Performance - Over the last 5 years, this stock has quadrupled. Revenue growth and been very consistent, at around 10% on average over many quarters. That isn’t blockbuster growth, but the consistency compounds over time. Gross margins are just under 60%, but have grown slightly in recent years and we may expect further margin growth as the software business continues to grow. The company has been profitable for many years and is continuing to grow its earnings over time.
Opportunity - As mentioned, Resmed serves an under-treated market.Importantly, their devices can be used at home, which means patients are often moved out of hospitals to home or other care settings, reducing the cost to the healthcare system. This is a company operating at scale, in over 140 countries. Through acquisitions, they are increasingly growing into larger Asian markets such as China and South Korea.
Risks - Competition is growing in the market, with Philips, the dutch electronic conglomerate, growing their product suite in the area.