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Here’s why the ResMed share price is 10% higher on its SaaS credentials

Cloud computing concept

The ResMed Inc. (ASX: RMD) share price is up 10% in afternoon trade today after the sleep treatment business revealed its non-GAAP operating profit grew 15% to US$182 million on revenue of US$662 million for the quarter ending March 31 2019.

Adjusted or non-GAAP earnings per share came in at US89 cents, which was ahead of the median analysts’ forecasts of US83 cents per share. The earnings ‘beat’ is in large part driving the ResMed share price higher today.

However, another factor lifting the valuation today is news that gross profit margins grew 1% over the quarter to 59% as the business revealed some decent operating leverage where profits climb faster than revenues.

Moreover, ResMed also revealed its newly-acquired enterprise facing software-as-a-service (Saa) businesses such as Brightree and Matrix Care doubled revenues over the prior corresponding quarter, although admittedly much of this was to do with the timing of the acquisitions.

Overall though it seems if ResMed can demonstrate to the market that it will get a strong return on investment from its push into SaaS its stock could run higher.

After all online enterprise SaaS is just about the hottest sector on the market right now.

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Motley Fool contributor Tom Richardson owns shares of ResMed Inc. The Motley Fool Australia has recommended 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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