ResMed Inc (ASX: RMD) shares have been comprehensively left behind by the market, and the sleep treatment giant's valuation is at its lowest in more than ten years.
That is particularly remarkable for a business still growing revenue at a double-digit clip.
But this situation also invites an important question.
Is the market right to be so pessimistic about ResMed shares, or is this just an overreaction?
Image source: Getty Images
Why ResMed shares have de-rated so sharply
Analysts at Morgans have retained a buy rating and a $41.72 price target, noting the shares have de-rated to just 16 times forward earnings.
That is the cheapest the company has looked in over a decade, despite the market continuing to forecast double-digit earnings-per-share growth. This is explained by two core anxieties.
The first is the rise of GLP-1 weight loss drugs and the fear they will shrink the pool of sleep apnoea patients over time.
The second is the broader healthcare rout, with ASX healthcare shares falling for six consecutive sessions last week after the United States announced fresh tariffs on 60 trading partners.
The most recent earnings result
ResMed released its third quarter results for the three months to 31 March 2026 at the end of April.
Revenue rose 11% to US$1.43 billion, or 8% on a constant currency basis. Gross margin expanded 290 basis points to 62.2% on a reported basis, helped by component cost improvements and manufacturing efficiencies.
Income from operations increased 17%, whilst non-GAAP diluted earnings per share climbed 21% to US$2.86. Operating cash flow came in at US$554 million for the quarter.
The company returned US$262 million to shareholders through US$175 million of buybacks and US$87 million in dividends.
Chief executive Mick Farrell pointed to "the continued strength of our global business" as demand held up across regions.
Sales in the United States, Canada and Latin America grew 9%, while Europe, Asia and other markets grew 7% on a constant currency basis.
Therefore, although the shares may have dropped, the company is still producing attractive operational growth figures.
The bull case for ResMed shares
In July the company announced an agreement to sell its MatrixCare business for US$490 million, sharpening its focus on core sleep and breathing health.
That deal also hands management additional capital for buybacks at a depressed share price. ResMed's balance sheet is in strong shape, with a substantial net cash position and no meaningful leverage.
Fourth quarter and full year FY26 results are scheduled for 6 August, and with consensus price targets sitting above the current share price, brokers see more upside for ResMed shares .
Foolish takeaway
GLP-1 concerns are still worthy of attention: there is still a possibility that weight loss drugs may reduce sleep apnoea severity for some patients over the coming decade.
But the evidence so far suggests treatment rates remain low and diagnosis is still the bigger bottleneck.
ResMed shares are not cheap because the business is broken, but rather because the market has decided to price in an existential threat that has not yet appeared in the results.
For investors who believe management's narrative that GLP-1 drugs won't materially affect ResMed's business, the stock's current valuation presents a very interesting buying opportunity.
