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Is the ResMed share price a buy?

The ResMed Inc (ASX: RMD) share price was down more than 14% for the week after hitting an intra-day low of $24.18 earlier today. Despite the volatile price action, the ResMed share price could be a long-term buy after the company reported strong full-year results.

How did ResMed perform?

The company released its fourth quarter and full-year update yesterday, which saw the RedMed share price sell-off sharply. Despite the negative price action, ResMed reported a very strong set of results.

For the three months ending 30 June 2020, ResMed reported a 10% increase in revenue on a constant currency basis of US$770.3 million. In addition to the robust revenue growth, the company also reported strong earnings with gross margins surging 59.9% for the period. As a result, ResMed saw a quarterly operating profit of US$243.4 million with quarterly net income surging 40% to US$193.3 million,

For the full-year, ResMed reported a 15% increase in revenue of US$3 billion on a constant currency basis and a 24% increase in operating profit of US$890.9 million. The company’s management noted that the strong performance reflects the strength and resilience of ResMed given the uncertain trading environment. Clearly, however, these results were not enough to prevent the negative impact on the ResMed share price.

What has fuelled ResMed’s performance?

ResMed is a global leader in respiratory medical devices, particularly targeted towards the treatment of sleep apnoea. In addition, the company also produces invasive and non-invasive ventilators that are used to boost the oxygen intake of patients. 

In its report, ResMed revealed that the company had produced 150,000 ventilators in the six months through to 30 June to help countries fight the COVID-19 pandemic. More than 52,000 of these units were for an urgent contract from the Australian Government, as the company tripled its ventilator production in order to meet demand.

Should you buy at today’s ResMed share price?

Many investors were highly anticipating ResMed’s results, given the demand for the company’s products during the pandemic. However, despite the bumper results, the ResMed share price tanked more than 8% yesterday. I believe the sell-off was a result of the company flagging a slow recovery in its core sleep apnoea business, with single digit growth expected to continue for the next 12 months.

The ResMed share price continued its fall this morning, plunging as low as $24.18 before bouncing back to its current level of $25.01 at the time of writing. Given the uncertain nature of the pandemic, and the further treatments that could be necessitated by it, I believe ResMed’s products could continue to see unprecedented demand over the long-term.

However, in my opinion, there shouldn’t be a mad rush to buy shares in the company at today’s ResMed share price. I think a conservative, long-term strategy would be to wait for investors to fully-digest the company’s results and let the ResMed share price consolidate further before buying in.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. 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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