Is ResMed Stock A Trap Or A Missed Opportunity?
ResMed (RMD) stock is at an interesting point right now. It is trading cheap, and if you bet on it, you are betting on a company that’s growing reasonably, is sustaining good cash flow and margin, has low-debt capital structure, and is relatively cheaply valued. But is that enough?
Why Bet On RMD Now?
ResMed’s primary value driver is the accelerating, high-margin, recurring revenue from its Masks & Accessories segment, which is fueled by a massive and sticky installed base of patients locked into the proprietary AirView software platform. The multi-year recall of its primary competitor (Philips) allowed ResMed to capture dominant market share, creating a powerful moat based on high switching costs for the Durable Medical Equipment (DME) providers who are dependent on the platform for operational efficiency and reimbursement.
- Masks & Other revenue grew +16.1% in Q2 FY26, significantly outpacing the 8.5% growth in Devices and indicating the strength of the recurring revenue model.
- Non-GAAP Gross Margin expanded by 310 basis points year-over-year to 62.3% in Q2 FY26, driven by favorable product mix weighted towards high-margin consumables.
- The AirView platform creates high switching costs and monitors over 10 million cloud-connectable devices, a scale that competitors cannot easily replicate, securing the installed base.
- No single customer accounts for more than 10% of revenue, indicating a fragmented and stable customer base with limited pricing pressure.
How Do The Fundamentals Look?
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- Revenue Growth: 9.6% LTM and 12.9% last 3 year average.
- Operating Margin: Nearly 30.9% 3-year average operating margin.
- No Margin Shock: ResMed has improved in the last 12 months.
- Modest Valuation: Despite these fundamentals, RMD stock trades at a PE multiple of 24.7
Below is a quick comparison of RMD fundamentals with S&P medians.
| RMD | S&P Median | |
|---|---|---|
| Sector | Health Care | – |
| Industry | Health Care Equipment | – |
| PE Ratio | 24.7 | 25.2 |
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| LTM* Revenue Growth | 9.6% | 6.4% |
| 3Y Average Annual Revenue Growth | 12.9% | 5.4% |
| LTM Operating Margin Change | 2.5% | 0.2% |
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| LTM* Operating Margin | 34.1% | 18.8% |
| 3Y Average Operating Margin | 30.9% | 18.2% |
| LTM* Free Cash Flow Margin | 32.9% | 14.0% |
*LTM: Last Twelve Months
The Bear View & The Current Investment Debate
The current investment debate on RMDis centered around: Can ResMed’s sticky, high-margin consumables business withstand the structural threat of GLP-1 drugs potentially shrinking its total addressable market (TAM) for sleep apnea?
The prevailing sentiment is neutral. Execution is flawless, with accelerating mask sales and expanding margins. However, the structural threat from GLP-1s is no longer theoretical; management has acknowledged a patient funnel slowdown, creating a powerful headwind.
| Bull View | Bear View |
|---|---|
| The GLP-1 impact is a net positive, driving diagnosis and therapy adherence. The recurring revenue from the massive installed base, locked in by the AirView ecosystem, remains durable. | GLP-1s will structurally reduce the new patient funnel for CPAP therapy. This TAM erosion, combined with competitor re-entry, will lead to significant multiple compression. |
You can evaluate more on which view to bet on by visiting RMD Investment Highlights & Full Analysis
RMD Is Just One of Several Such Stocks
Not ready to act on RMD? Consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- Meaningfully below 1Y high
- Current P/S < last few year average
- Strong operating margin
- P/E ratio below S&P 500 median
A portfolio of stocks with the criteria above would have performed has follows since 12/31/2016:
- Average 6-month and 12-month forward returns of 12.7% and 25.8% respectively
- Win rate (percentage of picks returning positive) of > 70% for both 6-month and 12-month periods
- Strategy consistent across market cycles
Portfolios Over Individual Stock Picks
Stocks soar and sink – the key is staying invested. A balanced portfolio helps you ride market volatility, boosts gains and reduces single stock risk.
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