The market may have surged ahead this morning but sleep disorder treatment device maker ResMed Inc. (CHESS) (ASX: RMD) isn't partaking in the rally even after it posted a double-digit jump in quarterly sales.
The stock slipped 0.5% to $7.70 as the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) zoomed up 1.7% in early trade as ResMed's result failed to meet expectations.
While revenue in the September quarter increased 15% on a constant currency basis to $US411.6 million, or $US4.2 million ahead of consensus estimates on Bloomberg, the company's adjusted earnings per share of US58 cents were two cents shy of what analysts were forecasting.
Increasing margin pressure can be blamed for the disappointing outcome as gross margin fell to 58% from 62.4% a year ago.
Lower average selling prices, poor sales of higher margin products and the rising US dollar contributed to the squeeze, while general expenses also increased by 11% on a constant currency basis.
The weakness seems a little overdone. If ResMed's share price was trading at record highs it might be a different story.
But the stock has actually fallen by around 17% over the past six months and is trading on a consensus price-earnings (P/E) multiple of around 16x for the next financial year.
The fact that there are a number of tailwinds supporting the stock means it should be trading on a higher multiple. The strengthening greenback is one that is not captured in the quarterly results as it reports in US dollars.
US interest rates are heading higher, if not by year end, in early 2016. In contrast, the Australian dollar is tipped to fall as the Reserve Bank of Australia is likely to cut rates again.
What's more, sales of ResMed's devices in its key US market are still growing strongly as revenues from the Americas jumped 23% to $US254.2 million, which is more than offsetting the 9% decline in sales to the rest of the world including Europe and Asia Pacific.
There's room for the stock to jump 20%-30% from current levels and ResMed still represents one of the best ways to gain exposure to the US dollar and economic recovery.
A similar case could be made for fellow medical device maker Cochlear Limited (ASX: COH), which is also heavily exposed to the US, but ResMed's valuation is more compelling as the stock has underperformed Cochlear in recent months.