ResMed Inc.

ASX:RMD

ResMed Inc.

ASX:RMD
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$32.75 (-0.3%)
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#4
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Forum Topics RMD RMD Bear Case

Pinned straw:
DrPete
Added 7 months ago

Channeling the spirit of "Strawman" I'll float a bear case for Resmed. So much has been written that the share price drop isn't justified based on the new weight loss drugs. But maybe Resmed was just overvalued before? At current price we're looking at 20-25 PE for a mature company that will do well to grow around 10% a year. I'd say a company growing around 10% is worth a PE around 20. So even if Ozempic doesn't dent Resmed's growth, I still don't see huge value at current share price for Resmed.
thunderhead
7 months ago

I'm still positive on both companies too even if they are unlikely to provide the spectacular returns of the past, so expectations have to be pared down accordingly.

However, the price trend in both is decidedly down/negative, so exercising patience with your purchases is the prudent way to go. Don't fight the trend!

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Solvetheriddle
7 months ago

@DrPete i think two things, firstly that your criticism of valuations can be levelled at many (maybe all) Australian growth stocks, it is a limited pool and investors wanting exposure to those stocks usually have to pay up. all is fine as long as no hairs appear. that is one of the reasons i started seriously looking at US growth stocks, there are plenty there and sometimes the risk/reward is better, just expands your universe.

in terms of RMD, i think you can paint literally thousands of scenarios based around the ability of weight loss pills to reduce demand for CPAP, ive read some really scary ones. To me that is a part of investing, making judgements on the unknowable future. the future will reveal itself in time. when there is high uncertainty you usually get a high risk premium so that is why it is interesting from the risk/reward scenario, of course, you could still be right, wrong or its a wash depending on the evolution of the facts.

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DVV1974
7 months ago

To me that is a part of investing, making judgements on the unknowable future. the future will reveal itself in time.

Exactly this! You portrayed it wonderfully with these 2 sentences. Credit to you :-)

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Strawman
7 months ago

I think there's something to that view @DrPete and I made a similar point with CSL. Especially if (like Howard Marks argues in his recent memo) you think the days of ultra low interest rates are a thing of the past.

If the buy thesis is that we'll see these stocks return to those elevated multiples in the next little while, investors could be disappointed.

On the other hand, if you see the driver of share price appreciation as the ongoing growth in earnings, and that the new lower (potentially more reasonable) multiples will be more or less maintained, then there's still a case to buy. Assuming, that is, profit growth is sufficient, or at least sufficient in the context of the lower risk that comes with higher quality companies.

Ie. The drop in multiples may have returned these stocks to fair value (which by definition allows for good returns). As opposed to providing a great bargain.

A case of great companies at a fair price,.as opposed to fair companies at a great price?


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mikebrisy
7 months ago

@Strawman you’ve perfectly summarised my thesis for $RMD (although the hiccup for $CSL will be relatively minor and shorter-lived, in my base case, but it has always been hard to justify $CSLs multiple on a fundamentals basis.)

My thesis for both is that they are quality companies that will continue to grow strongly through their global market leadership and capabilities in their respective therapy areas. The thesis does not rely on a high multiple but on robust long term earnings growth.

COVID and the plasma supply chain issues shows that $CSL’s performance can be vulnerable. The reaction against Vifor was premature and overdone, which is not to say there is no impact. It looks like there is. However, the two issues together, combined with higher for longer interest rates, are enough in my view to reset the multiple for the foreseeable future. But to reiterate, my thesis is based on sustained, strong eps growth.

For $RMD the risk is more fundamental, and hence the multiple contraction is more serious and will be more sustained. It will take years to dispel the question marks raised by GLP-1s. However, again, my assessment is that eps growth will continue to be strong and sustained.

Taken together $CSL and $RMD amount to about 12% of my RL portfolio. Today’s SP’s for both are very attractive, but I am content with current position size. Although I have solid conviction in both, I could be wrong, so it is my limitation on position size that mitigates the risk.

Having the multiples for both unwind in recent weeks and months sucks in terms of returns, when viewed over the last 3-4 years, but these are both companies to hold for 10 to 20 years, or forever.

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nerdag
7 months ago

@Strawman, @mikebrisyIMO, great companies at a fair price.

CSL has not been this cheap for a long time, and given the quality of the business, it's not likely to stay that way for too long. It's far from mature and has a long growth runway to go.

Similar for Resmed, although it doesn't have the same moats that CSL has around it.

I've topped up on both recently.

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