Why has the Resmed share price crashed 19% in a week?

The sleep-focused ASX 200 healthcare stock has been harshly punished over the past week.

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It's been a horrid week so far for the Resmed Inc (ASX: RMD) share price, no two ways about it. For one, the US-based healthcare share lost a nasty 4.63% yesterday, closing the session at $27.42 a share.

Since last Thursday (3 August), the Resmed share price has plunged from $33.85, a nasty 19% decline.

What on earth has gone so wrong for Resmed shares that have seen its shareholders take a near-20% cut in the value of their holdings in just a week?

Well, it appears all of the negativity stems from the full-year results that Resmed released, you guessed it, last Friday.

What's caused this collapse in the Resmed share price?

As we covered at the time, Resmed reported an 18% rise in revenues to US$4.2 billion. Net income was also up 18% to US$229.7 million.

However, it appears investors are being put off by Resmed's falling gross margins. The company revealed that its gross margin had fallen by 80 basis points to 55.8%. This in turn led to an earnings per share (EPS) metric of US$6.09. That was 9 cents below what the markets were estimating.

So it appears that investors have been spooked by this latest earnings report, and have pulled the bottom out from the Resmed share price accordingly over the past week.

But perhaps it's not all bad news for Resmed investors. As we covered earlier this week, ASX broker Citi has retained a buy rating on the sleep-focused company, with a 12-month share price target of $39. That would see Resmed gain more than 41% from the current share price if Citi is on the money here.

The broker acknowledged that it was disappointed with what it saw last week. However, Citi reckons the margin compression is only temporary and is set to rebound this financial year.

Let's see if the broker is right on the Resmed share price in a year's time.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended ResMed. The Motley Fool Australia has positions in and has recommended ResMed. 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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