ResMed Inc (RMD, Financial) recently observed a daily gain of 3.51%, despite a 3-month loss of 27.98%. Its Earnings Per Share (EPS) stands at 6.1. Is this stock significantly undervalued? Our valuation analysis aims to answer this question. We invite you to delve into this comprehensive exploration of ResMed's intrinsic value.
ResMed is a global leader in respiratory care device manufacturing. It primarily develops and supplies flow generators, masks, and accessories for treating sleep apnea. With an increasing diagnosis of sleep apnea, aging populations, and rising obesity prevalence, ResMed operates in a structurally growing market. The company earns roughly two-thirds of its revenue in the Americas, with the rest spread across regions dominated by Europe, Japan, and Australia. Recently, ResMed has focused on acquisitions and developments in digital health, aiming to differentiate itself through the provision of clinical data for use by patients, medical care advisors, and payers in the out-of-hospital setting.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow), a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. We believe the GF Value Line is the fair value at which the stock should be traded.
ResMed (RMD, Financial) is believed to be significantly undervalued, according to our valuation method. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $153.15 per share, ResMed stock is believed to be significantly undervalued.
Because ResMed is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. ResMed has a cash-to-debt ratio of 0.14, which ranks worse than 89.69% of 834 companies in the Medical Devices & Instruments industry. The overall financial strength of ResMed is 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. ResMed has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.20 billion and Earnings Per Share (EPS) of $6.1. Its operating margin is 27.26%, which ranks better than 91.02% of 824 companies in the Medical Devices & Instruments industry. Overall, the profitability of ResMed is ranked 10 out of 10, indicating strong profitability.
Growth is one of the most important factors in the valuation of a company. Long-term stock performance is closely correlated with growth, according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of ResMed is 12.2%, which ranks better than 63.4% of 724 companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth is 10.4%, which ranks better than 53.84% of 730 companies in the Medical Devices & Instruments industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. 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 9.3.
Overall, ResMed (RMD, Financial) stock is believed to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 53.84% of 730 companies in the Medical Devices & Instruments industry. To learn more about ResMed stock, you can check out its 30-Year Financials here.
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