The ResMed Inc (ASX: RMD) share price has been a strong performer in 2021.
Since the start of the year, the sleep treatment focused medical device company's shares have risen a sizeable 45% to $39.76.
This is more than four times greater than the return of the S&P/ASX 200 Index (ASX: XJO) over the same period.
Where next for the ResMed share price?
Unfortunately, one leading broker believes the ResMed share price may now have peaked for the time being.
According to a note out of Goldman Sachs, it has retained its neutral rating and $36.20 price target.
Based on the current ResMed share price, this implies potential downside of 9% over the next 12 months.
What did the broker say?
The broker notes that ResMed has just held its annual investor day event.
And while the company spoke positively and reiterated its expectation of a US$300 million to US$350 million revenue tailwind from a competitor product recall, it isn't enough for a more positive rating. This is largely due to the current valuation of the ResMed share price.
Goldman explained: "Our primary challenge with the stock at these levels is valuation. Clearly, RMD has a substantial opportunity to capture sustainable share from a material product recall, but we believe the earnings upside may not justify US$15bn (A$20bn) of additional market capitalisation since mid-May (43x-50x the guided FY22 revenue tailwind)."
The broker is forecasting solid sales and earnings growth through to FY 2026. However, the level of growth it is forecasting is simply not enough to justify the higher than normal multiples its shares trade on.
It said: "We forecast normalised sales/earnings CAGRs of +7%/+8% respectively (FY23-26E), modestly below recent historical run-rates, and yet valuation of 33.1x NTM EV/EBITDA is now a substantial sector premium and +57% vs. history. We remain Neutral-rated."
