Buy the ASX 200 healthcare stock with 'decades of growth ahead'

This healthcare giant is well positioned for growth, experts say.

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If you're on the hunt for a top-notch ASX healthcare stock, thinking long-term is the right strategy.

Australia is home to some wonderful health and medical companies – many with terrific prospects over decades to come.

One ASX healthcare company that analysts are bullish on long-term is ResMed Inc (ASX: RMD). Its stock has increased a hefty $10.33 per share since October 22 last year and opens the session today at $31.93. That's a 47% gain.

Analysts believe it has even more potential. According to CommSec, 19 brokers rate it a buy, six hold, and one sell. Here's what the experts say.

Why ResMed is a top ASX healthcare stock

ResMed has been a standout performer in the ASX healthcare sector this year. Its share price has surged 25% this year to date.

Lachlan Hughes, a portfolio manager at Swell Asset Management, reckons ResMed is a well-run business with significant growth potential.

He highlights its vast market presence with around 22.5 million customers in a market of 1 billion people. Hughes believes ResMed has "decades of growth ahead as the penetration is low and it's the number one player in its market", according to the Australian Financial Review.

The price is off as people said the GLP-1 (weight loss) drugs will negatively impact demand, but we take the opposite view and believe demand for these devices continues to thrive.

The sleep disorder treatment market, where ResMed operates, also presents a massive growth opportunity, according to analysts at Bell Potter. The broker recently noted that more than a billion people worldwide suffered from obstructive sleep apnoea (OSA), with many remaining undiagnosed. This could be bullish for ResMed, it says.

Bell Potter rates ResMed a buy with a price target of $36.00, also citing the ongoing recall of competitor Philips' respiratory devices as a tailwind.

Moreover, ECP Asset Management finds ResMed's valuation "very appealing," despite market concerns about the impact of GLP-1 weight loss drugs.

Regarding the ASX healthcare stock's selloff from $33.99 in July 2023 to $21.44 per share by September, the broker said that ResMed was "derated due to the frenzy" around these drugs but could still be undervalued.

ResMed's market position

Investment firm Wilsons' analysis further supports ResMed's strong market position. According to my colleague James, Wilsons recently noted that, despite a "solid earnings-driven share price recovery", ResMed trades at a significant discount to its historical price-to-earnings (P/E) multiples.

It expects the ASX healthcare stock to rise as concerns about GLP-1 weight loss drugs ease, which could allow the market to focus on ResMed's fundamentals instead.

"We expect RMD's valuation to re-rate higher as GLP-1 concerns progressively abate and the market shifts its focus to the strong fundamental outlook of the business", Wilsons said.

In its Q3 FY 2024 update, the company booked a 7% growth in revenues to US $1.2 billion and a 2.6% increase in gross margins to 58%. Growth was underscored by performance in all regions, including an 8% year-over-year increase in sales for its software-as-a-service business.

Management remains "laser-focused" on continuing its innovative solutions in respiratory medicine going forward.

Foolish takeaway

According to many experts, ResMed could be a compelling investment in the ASX healthcare sector.

The ResMed share price has lifted more than 25% this year to date but is flat over the past year.

Motley Fool contributor Zach Bristow 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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