Can anyone tell me why ResMed is not a buy even in this economic environment? I’ve been following this company as well as Respironics (RESP) which operate in a duopoly in the steady growth area of sleep disorders and I owned RESP when it was purchased by Philips Electronics. Now I own RMD and I’m thinking about purchasing more but I’d like to see if there are some holes in this story if anybody is familiar with the stock. Thanks.
The economy isn’t all that matters. Statistically, it’s likely to underperform because I see analysts have been revising estimates down. Fundamentally, it’s super expensive, margins shrinking, low ROA… Why should we look further at this company? How can you be sure they’ll keep growing and reverse the margin shrinkage to justify their expensive price?
Earlier last year they made a very conservative re-call on one of their products because of course in an industry like this they need buy in from the doctors, sleep technicians ( I believe that is their name), etc and need to be trusted. This lowered margins overall in the past few quarters as well as the fact that they just put out a new product which has been well received. Around the time Respironics was bought out people bid this stock up to mid $50s in hopes of a similar take-out but since then has come all the way back. I think the high P/E is a function of lower earnings due to the recall and new product roll-outs. I think its increasingly harder to find companies that operate in duopolies with high barriers to entry and this is one. They trade at a premium because of this fact and that sleep disorders are gaining traction with doctors and becoming more mainstream. I initially was interested in these players due to a friend who works in the industry and how much he depends on products from 2 companies.
Cat Fanciers’ Association Wrote: ------------------------------------------------------- > Can anyone tell me why ResMed is not a buy even in > this economic environment? I’ve been following > this company as well as Respironics (RESP) which > operate in a duopoly in the steady growth area of > sleep disorders and I owned RESP when it was > purchased by Philips Electronics. Now I own RMD > and I’m thinking about purchasing more but I’d > like to see if there are some holes in this story > if anybody is familiar with the stock. Thanks. i think the bear case on RMD shares is that there are still concerns about the company’s sales growth potential throughout f2008. the company was in-line for f2q08 at first blush on top and bottom line as well as GM, but US and ROW sales growth was only 7% and 20% y/y respectively. also, RMD saw less than 3% growth in US device sales and unit ASP’s have continued to decline, causing investors to question how much GM expansion they can reasonably expect this year. basically, pricing pressure from RESP has continued and people aren’t really too sure whether the recent slowdown in overall market growth is just a blip on the radar or signs of actual market maturation. basically, i think the overhang on this stock right now is concerns about the US growth and secondly with potential GM expansion. however, the company is slated to launch a number of new flow generator and mask products throughout this fiscal year and comps should get easier in the forward quarters. also, bulls on the stock would point to the fact that valuation is pretty attractive right now after the recent sell-off. anyway, i hope this helps…i’m not in ER anymore and am contented about not giving any recommendations, but hopefully this information helps you make your decision one way or the other
Thanks Numi, good explanation. I have a position in this stock since its pulled back so much in the past few months and it got to a level I felt comfortable buying, but if it comes back to $35 I’m going to probably add some more.
no problem buddy. hope you can make some money
Numi, How in the heck is this valuation attractive? I certainly can’t see that? Cat fancier, I understand you like/believe in the company but what is the total sales market potential for their sleep technology and what % will they likely capture? You must at least know that to value it at $35 or $50 or whatever?
What are you looking at that tells you it’s not attractive? BTW, I don’t have a personal opinion on whether it’s a good stock to own or not - I was commenting on the investor sentiment I’ve seen and heard from both buyers and sellers. (that’s one aspect of equity research I’ll miss now that I’m no longer on the public investment side)
I’m looking at existing earnings.
Yeah like I said current earnings will be very depressed due to the recall and rollout costs for the new products. But thats the reason I think its a Buy. But who knows, only time will tell, I’ll be sure to let you know in a couple months what happens. But in the meantime I enjoy some criticism in my stock purchases just so I know I really have conviction.
Stock Flashback: RMD up 15% since March 12th S&P 500 down 5% Not bad.
i pitched RESP on interviews 2 years ago, before b school. great niche area and RMD is okay, but RESP was clearly the better one to own, buy they got taken away