With a market capitalisation of over $7 billion ResMed Inc. (CHESS) (ASX: RMD) is a widely followed stock.
In contrast, Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) is a healthcare company which competes with ResMed in the obstructive sleep apnea (OSA) market, but which is far less widely followed despite having a market capitalisation of around $3 billion and also being a leader in its field.
While ResMed receives much of the market's attention, there are a number of reasons investors could be better off focusing on the out-of-the-spotlight Fisher & Paykel Healthcare.
Diversified operations
Fisher & Paykel Healthcare is a leader not just in OSA treatment but also in medical devices and systems for respiratory care and acute care treatments.
In FY 2014, Fisher & Paykel earned NZ$301.5 million in revenues from its respiratory and acute care division while earning a further NZ$235.8 million from its OSA division.
Strong Growth
Certainly ResMed has achieved impressive levels of growth in the past but so has Fisher & Paykel Healthcare. Over the five years from 2010 to 2014, operating revenues increased from NZ$503 million to NZ$623 million, while profits increased from NZ$71.6 million to NZ$97.1 million. FY 2014 marked record levels for both revenues and profits.
Taking a longer term view, over the past 15 years, the group has achieved compound annual growth rates in revenue of 12%. If management can continue this rate of growth into the future then the company will be on track to achieve its strategic goal of doubling constant currency revenue every five to six years.
Valuation
According to data supplied by Morningstar, ResMed is forecast to grow earnings at close to low-double digits over the next two years. With the stock's multiple at around 20x, the stock looks pretty fully priced.
In contrast, Fisher & Paykel Healthcare is expected to achieve earnings growth in the mid-double digits over the next two years, making its slightly higher multiple arguably more appealing given it also has a more diversified earnings base.
