This has been a frustrating year for shareholders of California-based healthcare company ResMed Inc (ASX: RMD). Despite the ResMed share price rising almost 25% to $27.41 so far in 2020, shareholders have had to endure a fair amount of volatility to get here. It seemed like every time ResMed shares looked set to cross over the psychological $30 barrier, they ended up crashing lower.
What does ResMed do?
ResMed develops medical equipment for the treatment of respiratory conditions, with a particular focus on sleep apnoea. Early in the COVID-19 pandemic, the company announced it had ramped up production of various ventilator systems and equipment to help treat coronavirus patients suffering from respiratory complications.
What has driven the ResMed share price volatility?
The ResMed share price plunged 7% the day the company released its full year results to the market back at the beginning of August. This was despite ResMed reporting a 13% increase in revenues year on year to US$3 billion, and a 40% jump in net operating profit.
Revenues across most geographies were boosted due to increased demand for ResMed's ventilators during the COVID-19 pandemic. However, demand for the company's sleep devices in key markets across the United States, Canada and Latin America declined during the year.
ResMed's first quarter FY21 results, released late October, told a similar story, and yet the share price rose sharply in response. Revenues for the quarter increased 10% against the prior comparative period to US$751.9 million, while net operating profit surged 27%.
Again, the result was driven primarily by increased sales of ventilators, partially offset by decreased demand for sleep devices in the US, Canada, and Latin America. Selling, general and administrative expenses also continued to decline due to prudent cost management during the pandemic.
Due to how similar these two results actually were, it's hard to say why the market responded so differently to them. However, it's worth noting that there was a fair amount of noise in ResMed's FY19 result as the company settled some large legal expenses that year, which inflated the relative year-on-year performance for FY20. The first quarter result for FY21 excludes a lot of that noise, giving a cleaner picture of the company's underlying performance.
There is also the simple fact that general optimism around the rollout of a COVID-19 vaccine early in 2021 has boosted the performance of the ASX more broadly. The release of ResMed's FY20 results coincided quite closely with the introduction of Melbourne's harshest lockdown, and Victoria's COVID-19 cases were spiking. The performance of the broader S&P/ASX 200 Index (ASX: XJO) was languishing during this period, and only really started gathering momentum again in early November – around the time ResMed released its first quarter FY21 result.
The biggest disappointment for ResMed shareholders is that the company has underperformed relative to New Zealand-based competitor Fisher & Paykel Healthcare Corp Ltd (ASX: FPH). The Fisher & Paykel share price has gained close to 44% so far this year without the same level of volatility.
As COVID-19 vaccine rollouts progress throughout the world in 2021, it will be interesting to track both companies' earnings to see how dependent they have been on increased ventilator sales.
