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Why I think RESMED (ASX:RMD) offers great value at this share price

When it comes to healthcare stocks, it is hard to look past the ASX stand-outs of CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH).

There is, however, a quieter story that may offer value to investors that parallels these two ASX stalwarts.

Notwithstanding RESMED’s (ASX: RMD) stellar run over the last nine months, it remains an attractive proposition for investors for the following reasons.  

The Future of the Sleep Apnoea Market  

It is common knowledge that the developed world is currently undergoing an obesity epidemic, the proportions of which make it one of the most troubling public health challenges in the modern era.

One of the associated challenges is the ubiquity of related health disorders, one of which is the condition of sleep apnoea, which is estimated to impact around 5% of the population of the United States.  

As the obesity epidemic continues to grow, so too will ResMed’s market for sales of its cutting-edge CPAP (continuous positive airway pressure) devices.

These devices are essential in providing quality of life to sufferers, and ResMed is one of the world’s leaders in their development. If anything, ResMed’s market seems slated for strong growth in the coming years. 

Innovation  

The company is not sitting on its hands with regard to its product. Instead, ResMed is constantly innovating in an attempt to keep pace with the increasingly technology-reliant healthcare sector, and now claims to have more than 5 million devices that are remotely connected to the cloud, enabling easier patient monitoring and treatment.  

Geographically Diversified Revenue Streams  

ResMed also offers fantastic georgraphic diversification. Earnings come principally from  the United Staes (59.5%),  with Germany (7.4%), and the rest of the world including Latin America (33.1%) making up the difference.

This diversity offers an increased buffer against financial headwinds that would trouble a company that was completely reliant on one market. For those seeking to diversify and mitigate against risk, this makes ResMed one to really consider.  

Strong Financials   

For the first time, ResMed’s earnings per share hit an FX-adjusted 20 cents in the first half of the 2018 financial year, and it has delivered a one-year shareholder return rate of 42.7%, considerably outstripping its 3-year average of 26.6%.

Although ResMed is still a pricey proposition with a price to earnings ratio (PE) of 30 (contrasted with 18 for the sector), I think that the earnings growth is an indicator that it is still an attractive proposition for investors.  

Foolish takeaway  

Many view the price to earning ratio of a company as the most important metric for determining whether or not to invest. However, I would argue that ResMed is still an attractive proposition despite its high P/E. An expanding market and cutting-edge technology mean that ResMed may outperform some already-lofty expectations, and it is definitely one to consider.  

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Motley Fool contributor Tom Clelland has no financial interest in any company mentioned. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. 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 Scott Phillips.

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