Today We are opening a position in Resmed (RMD).
RMD develops, manufactures, and distributes medical devices that treat and manage respiratory disorders, including sleep-disordered breathing (SDB). There is also a software element to the company. The Airview software stores data in the cloud that helps manage patients and enables quick access to patient data that can be shared with your doctor or other health professionals.
In the last few months, the RMD share price has fallen on emerging concerns about the impact of new drugs that target obesity. Drugs such as Ozempic belong to a class of drugs called GLP-1/GIP receptor agonists. The group of drugs were initially developed to target type 2 diabetes, but they have demonstrated efficacy in weight and cardiovascular management.
There is a correlation between being overweight and having type 2 diabetes which leads to sleep apnoea which in turn drives demand for the medical devices Resmed produces.
Investors have been concerned that the new medications could usurp ResMed by solving the underlying cause of the disorder it treats.
Why the new drugs might not have the effect the market is expecting.
- Weight loss medications and the devices ResMed sell could be complementary.
- It is still early days for the use of the new drug and if people stop taking the medication it leads to gaining the weight back which returns patients to using sleep apnoea machines.
- Sleep apnoea remains significantly undiagnosed in the population, so the market still has room to grow.
A quick look at the financials shows revenue and net profit are all compounding at consistent annual growth rates.
ResMed is also a company that because of its consistent growth rates has traditionally traded on high P/E ratio of 30 to 50 times earnings. The company is now trading on a forward p/e of 20 times earnings, so looks cheap.
TRADE ACTION
Quantity: Buy 300 shares
Entry: Buy up to $23.50
Stop Loss: $20.50
Target Price: $30.00
