Is ResMed Inc. (CHESS) the best new software company on the ASX?

It’s no secret that digital technology in particular is changing quickly with the Internet of Things and software-as-a-service commonly touted as the next big technological trends for investors to cash in on after the shift to the cloud.

All three technologies are underpinned by the power of the internet and increased global connectivity with tech companies like Altium Limited (ASX: ALU), Atlassian and XERO FPO NZ (ASX: XRO) all growing like gangbusters in their respective tech spaces.

Another sector leveraging the shift to the storage of online data (the cloud) and software-as-a-service (the delivery of software updates to clients online on a recurring revenue and subscription basis) is the healthcare sector.

That’s no surprise given the vast amount of patient records and clinical data that can be stored online to save costs and deliver improved healthcare treatment and results to practitioners, patients or both.

One healthcare company sitting at the cutting edge of this tech-driven growth sweet spot is sleep disorder treatment market leader ResMed Inc. (CHESS) (ASX: RMD).

As a manufacturer of medical devices used by patients during their sleep it recently announced that it has now digitally recorded 1 billion nights of sleep data across its patients that will help it improve treatment of sleep apnea and other respiratory conditions.

It now has more than 2 million patients remotely monitored every day by medical practitioners and its recent acquisition of home health billing software provider Brightree Inc. is another margin-lifting move where it may be able to leverage Brightree’s technologies across its broader business lines.

ResMed Inc. operates in a competitive space though, with rivals like Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) and Somnomed Limited (ASX: SOM) also looking to sell medical devices for the treatment of sleep apnea. It’s also important to note that in the medical device space being a market leader can give you a competitive edge and pricing power, with ResMed currently locked in a patent infringement legal dispute against Fisher & Paykel.

Just yesterday, ResMed also announced it has won important U.S. regulatory approval to sell its smallest core sleep treatment device yet, which may prove a big new revenue line for the company and its on-selling home medical equipment providers. The news also demonstrates how the company’s research and development budget for new products helps it maintain a competitive edge in a market with high barriers to entry.

Foolish takeaway

The stock sells for A$8.63 today and the scrip issued on the ASX represents a 1/10th interest in the NYSE-listed scrip that sells for US$64.25. This is important to note as the ASX scrip will follow the AUD / USD spot rate quite closely. So for example if the AUD dropped to only buy 64.25 U.S. cents tomorrow the AUD scrip would be worth around A$10 tomorrow.

I don’t expect the Australian dollar has much further to fall against the U.S. dollar in 2017, however, for investors who have nil to little exposure to a stronger U.S. dollar currently an investment in ResMed would make sense at today’s prices.

Of course if you remain bullish on the U.S. dollar in 2017 an investment in ResMed now would make more sense, even if you already had significant exposure to a stronger U.S. dollar. Currency fluctuations aside, ResMed’s mix of tech-driven healthcare and strong founder-led management team means it remains one of the best growth stocks on the ASX.

ResMed also pays a dividend in the region of 2%, but that’s small beer compared to the under-the-radar company identified below…


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Motley Fool contributor Tom Richardson owns shares of Altium, ResMed Inc., and Xero. The Motley Fool Australia owns shares of Altium and Xero.

You can find Tom on Twitter @tommyr345

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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