The ResMed. Inc (ASX: RMD) share price was the worst performer on the ASX 200 last week.
The medical device company’s shares fell 11.4% over the period in response to the release of its full year results.
Is this a buying opportunity?
I think the pullback in the ResMed share price has created a buying opportunity for investors. Especially for those that are planning to make a long term investment, as I believe it has a very bright future ahead of it.
This is because ResMed has a focus on the lucrative sleep treatment and ventilator markets. It designs, develops, and manufactures masks to treat sleep disorders such as sleep apnoea. It also has a growing software business which provides solutions that support sufferers of sleep disorders.
On its investor call last week, management noted that there are 936 million people with sleep apnoea globally. There are also over 380 million people who suffer from chronic obstructive pulmonary disease (COPD) and over 340 million people living with asthma.
This gives it a massive addressable market to grow into over the next decade. So much so, management is aiming to improve a total of 250 million lives by 2025. This compares to the 16 million lives it improved in FY 2020 by providing them with a device or complete mask system to help them breathe.
Growing software business and R&D.
Another key attraction to the company for me is its software business. Management believes this business is a competitive advantage and it is hard to disagree.
At the end of FY 2020, ResMed’s digital health ecosystem had grown to over 12 million cloud connectable medical devices, with around 14 million patients enrolled in the AirView software solution. There are numerous benefits to this growing ecosystem, including recurring revenues and high levels of quality data. It is using this data to perform sophisticated analytics and drive actionable insights.
Pleasingly, management isn’t resting on its laurels and continues to invest heavily in research and development in an effort to cement its leadership position in the industry. It spent US$202 million on these activities in FY 2020 and intends to grow its investment in the double digits in FY 2021.
It notes that it has a full pipeline of innovative solutions that will generate both medium and long-term growth opportunities. It also has an industry-leading intellectual property portfolio of over 6,000 patents and designs.
Given its strong position in the industry, its massive market opportunity, and its investments in research and development, I believe ResMed remains one of the best buy and hold options on the Australian share market.
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Motley Fool contributor James Mickleboro 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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