ResMed (RMD): Is the Stock Significantly Undervalued? An In-Depth Analysis
As of October 05, 2023, ResMed Inc (NYSE:RMD) recorded a daily loss of 3.3% and a three-month loss of 32.57%. Despite these losses, the company's Earnings Per Share (EPS) stands at 6.1. This analysis aims to answer the question: Is ResMed (NYSE:RMD) significantly undervalued? We invite you to delve into the following valuation analysis of ResMed (NYSE:RMD).
Introducing ResMed Inc (NYSE:RMD)
ResMed is a global leader in respiratory care devices, primarily providing flow generators, masks, and accessories for sleep apnea treatment. The increasing diagnosis of sleep apnea, coupled with aging populations and the rising prevalence of obesity, is driving market growth. ResMed earns approximately two-thirds of its revenue in the Americas and the rest across other regions, primarily Europe, Japan, and Australia. The company's recent focus has been on digital health, aiming to differentiate itself by providing clinical data for patients, medical care advisors, and payers in the out-of-hospital setting. ResMed's stock price currently stands at $143.13, while its GF Value is $276.73, indicating a potential undervaluation.
Understanding the GF Value
The GF Value is a proprietary measure that represents a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If a stock's price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, the stock is likely undervalued, and its future return will likely be higher.
ResMed (NYSE:RMD), with a market cap of $21.10 billion, appears to be significantly undervalued based on this valuation method. As such, the long-term return of its stock is likely to be much higher than its business growth.
Evaluating ResMed's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding to buy its stock. ResMed's cash-to-debt ratio is 0.14, ranking it lower than 90.26% of 832 companies in the Medical Devices & Instruments industry. Despite this, GuruFocus ranks ResMed's overall financial strength at 7 out of 10, indicating fair financial strength.
Profitability and Growth of ResMed
Investing in profitable companies, especially those with consistent long-term profitability, poses less risk. ResMed has been profitable for the past 10 years, with an operating margin of 27.26%, ranking it higher than 91.3% of 828 companies in the Medical Devices & Instruments industry. Furthermore, the company's growth ranks better than 63.19% of 728 companies in the same industry, with a 3-year average annual revenue growth rate of 12.2% and a 3-year average EBITDA growth rate of 10.4%.
ROIC vs. WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, ResMed's ROIC was 17.77, while its WACC came in at 9.69.
Conclusion
In conclusion, ResMed (NYSE:RMD) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 53.42% of 730 companies in the Medical Devices & Instruments industry. For more information about ResMed stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
