While both CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) have become Australian household names, another ASX healthcare share that is equally as successful, but lesser known, is ResMed Inc (ASX: RMD).
ResMed has been an amazing Aussie success story, growing from a tiny backyard Australian operation 30 years ago to become a large US-based company employing more than 7,500 people worldwide.
So, what does ResMed do?
ResMed is a designer and manufacturer of devices and cloud-based software solutions for the treatment of sleep apnoea and other chronic respiratory illnesses.
It provides end-to-end connected health solutions that can be used in the home, via software-as-a-service (SaaS) solutions, thus reducing the financial and resource burden of in-hospital treatment.
ResMed is cleverly leveraging big data, artificial intelligence and machine learning by utilising the data it collects from its patients.
The potential market for sleep apnea is huge. It is estimated that there are one billion people impacted by sleep apnoea worldwide, with more than 80% undiagnosed cased globally and it is highly prevalent in other medical conditions.
ResMed's goal is to improve 250 million lives in out-of-hospital healthcare by 2025.
What is driving ResMed's growth?
ResMed performed very strongly performance during FY19, with revenues rising 11% during FY19. Strong growth is continuing in FY20, with revenues rising by 16% during the first quarter.
New product launches, strong customer demand from its mask segment, successful targeted acquisitions, and increasing investments in new data platforms have all helped drive recent revenue growth and should drive future growth.
ResMed's gross margin has been steadily rising, indicating increasing economies of scale, and increasing its barrier to entry of new competitors. Its 'competitive moat' is widening due to the reinvestment of a high proportion of its profits into research and development.
It also plans to move further into the cloud-connected health space. This segment provides better margins and the rich datasets generated by connected healthcare can further improves its offerings.
How does it compare with its healthcare peers?
ResMed has a price-to-earnings ratio of around 46 (at the time of writing), which is on par with the 2 larger major providers in the healthcare technology space, Cochlear and CSL.
In addition, ResMed's revenue growth has been faster than both of these companies, indicating that it is fairly well valued compared to its healthcare rivals.
Foolish takeaway
I believe that the demand for high quality specialist healthcare companies such as ResMed should remain high during the next decade, due to the high barriers to entry of competitors, rising global demand for healthcare services, and the resilience generally of healthcare companies to any economic downturns.
I think ResMed in particular is very well placed to continue to provide strong revenue growth over the next decade and continue to outperform the long-term ASX 200 average.
