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📚 ResMed Inc. (RMD.AX) — Rational Compounder research
Hand-covered research: fundamentals, value vs book, retained-earnings test, earnings trends, cost of capital and fair value — published as written, last updated 2026-09-19.
Author's research notes
| Management Reputation | High |
| Debt Exposure | Low |
| Legal Exposure | Low |
| Inflation Exposure | Low |
| Business Understanding | High |
| Value Prospect | High |
| Progress Prospect | High |
| Wealth Prospect | High |
| Public interest? | Yes |
Risk & Inversion
Inversion Angle: Can ResMed still compound owner earnings at roughly 12% annually if GLP-1 adoption accelerates, Philips recovers share, reimbursement pressure increases, and software synergies are weaker than expected?
-Are there alternative treatments for CPAP that can replace and take market share from RMD? Hypoglossal Nerve Stimulation (HNS) is apparently the top competitor for CPAP; however, this treatment is only recommended when the patient rejects CPAP. The obvious question that comes to mind is why? If the alternative is so good that you don't need to sleep with a mask on, why is it only an alternative after the patient rejects CPAP? Well, the answer is clear: risk. Surgery failure, reaccommodation of the device, which means going back to surgery, infection, pain, hematoma, and pneumothorax. Not a doctor, but I wouldn't like to wear something with these risks. Potentially a risk in the long term—something to monitor, not to worry about today. There are other treatments that are linked to pharmaceutical treatments; however, most of these are connected to GLP-1, which is going to be studied in the next question. Once GLP-1 is removed from this potential alternative, the options reduce to mainly nothing emerging that could be a threat to CPAP. The causes of OSA are mainly mechanical, hinging around small airway, large tongue, recessed jaw, and airway collapse during sleep. These are unlikely to be successfully treated with drugs and rather with neurological treatments. This increases substantially the possibility of success to replace CPAP. It's understandable how GLP-1 helps with these issues in obese people, as these mechanical issues are exaggerated by overweight. Not the same for non-obese people, and unlikely to get a pill that solves the problem for this cohort. Then the solutions are neurological treatment, which is much more difficult.
-How severe will the long-term impact of GLP-1 drugs be combined with Philips? The first number found for this question is that 65% of the people with OSA are non-obese and 35% of the people are obese. This means that around the same % of CPAP users are obese, which reduces to 39% RMD exposure to GLP-1. Our analysis reached the conclusion that 15% of the 35% of obese people take GLP-1; therefore, 35%*15%=5.3% of the obese people take GLP-1. We also reached the conclusion that 65% of the people taking GLP-1 stop taking it after 1 year; therefore, 5.3%*35%=1.9% remains long-term with GLP-1. The growth of GLP-1 adoption is 30% (worst-case scenario). This means that in 10 years, our 1.9% will grow to 26.2%. This means that 74% of the 35% will not need CPAP; therefore, 9.3% will keep using CPAP. The annual growth of OSA is 5%. If we take into account the numbers calculated before, the GLP-1 drugs will slow down the growth to 3.2%. This will mean that the impact on RMD growth for this will potentially be down from 15-18% to 12%. The final growth after taking into account Philips is 10-11%—this will be the worst-case scenario. Our base case is 12.5%.
-Is ResMed vulnerable to a major product safety event, cybersecurity issue, or regulatory intervention that could damage its reputation and market position? The main risk here is Medicare changes, which fall within regulatory intervention. This part can crunch their margins. Combined with GLP-1 and Philips, this will put the company in a difficult spot with a high chance to destroy shareholder value in the future. USA represents 65% of the company's revenue, and 80% of this revenue is connected to Medicare reimbursement. Risk of mediocre growth in the short to medium term is high.
Management & Context
CEO Time With Company: 26 Years
How Old Is the Business?: 37 Years
Competitors Analysis 2: ResMed consists of two segments: Sleep and Breathing and Residential Care Software. Sleep and Breathing accounts for 87.5% of the company's revenue, and Residential Software accounts for 12.5% of the company. Main competitors for the Sleep and Breathing segment are Philips and Fisher & Paykel. The main competitors for the residential care software are PointClick Care and Wellsky. In the breathing segment, RMD has 62% of the market approximately, Philips 20%, and F&P 13%. In the residential care, Wellsky has 12.5%, RMD 17.5%, and PointClickCare 37.5%. Before the Philips recall in 2021, the market share was: RMD 42.5%, Philips 42.5%, and F&P 10%.
RMD has had two events that influenced its growth: one unplanned Philips recall and one planned—the incorporation of residential software. Residential care is only 12.5% of the company's revenue, but its true impact could be much larger, on the order of 55% of connected devices may come from residential care software clients, which are elderly and less susceptible to being impacted by sleep apnea.
-Can Philips or Fisher & Paykel take material market share from ResMed over the next 10 years? The difference in RMD's market share between the Philips recall and current is 19.5%. Using a rating for Philips and RMD products, we reached RMD retaining 58% of this, which is 11.3%, and therefore losing 8.2%, with a final 54% market share. Philips, on the other hand, has the potential to recover 8.2% to 28%. Our market share retention for RMD is 54% for the medium term. This will represent an owner earnings reduction of 1.6%. This means that after GLP-1 and Philips, RMD will grow at 12% as a base rate. We can assume that F&P remains unchanged and loses revenue to Philips as well.
-RMD's moat appears to be the software and the cross-connectivity rather than the device itself. The device can be easily replicated, but not the interconnectivity provided by the software, which provides one closed loop of connectivity. This may lock patients and doctors using this technology to use the sleep apnea devices. We estimate that 55% of the devices may come from the residential care software. A full recovery of Philips is unlikely to affect RMD or to even have a high chance to happen. The moat is the software! It controls the information flow between doctor and patient. Switching devices means this information flow breaks. This interrupts therapies and reduces efficiency. It also creates other hidden costs that are avoided by the use of the software. This switching cost is higher at the provider level, being revenue cycle interruption, workflow redesign, and data migration. RMD purchased the software companies so this can be replicated, but it still needs 5-10 years if it's going to be replicated by someone.
-On the software side, they are not the main player, and there is a lot to grow. This is clearly an opportunity for them but also a weakness due to exposure of losing competitiveness.
-The final conclusion of this analysis is that RMD is clearly superior to the others with a clear moat that is very difficult to replicate.
Fundamentals
| Earning Yield | 4.8% |
| Price to Sales ratio | 5.85x |
| Total Current Assets | $6,073,230,978 |
| Inventory | $1,328,193,962 |
| Working Capital | $4,112,296,545 |
| Tangible Asset Value | $4,524,212,745 |
| Market Cap/Tangible Asset Value | 10.22x |
| Income Tax Expense | $556,275,529 |
| % Income Paid on Taxes | 20.6% |
| Book Value Per Share | $6.39 |
| 1.5xBV | $9.58 |
| Interest Coverage | 216.04x |
| Working Capital to Debt | 5.45x |
| EV To Free Cash Flow | 19.67x |
| Net Income Ratio | 26.9% |
| Free Cash Flow Yield | 5.0% |
| Intangibles To Total Assets | 37.5% |
| Price to Equity Ratio | 5.00x |
| Return on Tangible Assets | 27.1% |
| ROE | 23.7% |
| Operating Income Ratio | 33.5% |
| PFCF Ratio | 20.06x |
| ROIC | 19.2% |
| Debt to Assets | 9.2% |
| Quick Ratio | 2.42x |
| Current Ratio | 3.10x |
| Debt to Equity | 0.13x |
| Covariance (SP500) | 13,428.50 |
| Correlation (SP500) | 0.84x |
Value vs Book
| Share Price | $31.87 |
| 52 Week High | $43.29 |
| 52 Week Low | $25.50 |
| Free Cash Flow (TTM) | $4,057,820,342 |
| IV/BV | 10.39x |
Retained Earnings
| Share Price | $31.87 |
| 52 Week High | $43.29 |
| 52 Week Low | $25.50 |
| Market Cap (TTM) | $46,232,809,429 |
| EPS (TTM) | $1.47 |
| Dividend (TTM) | $0.33 |
| Ratio P/(E-D) | 28.16x |
| Dividend Yield (TTM) | 1.0% |
| Retained Earnings (TTM) | $1.14 |
| 10Y Retained Earnings (From Last FY) | $4.50 |
Earnings Trends
| 10y Average Earnings | $0.64 |
| 4y Average Earnings | $0.97 |
| Max Earnings | $1.47 |
| Min Earnings | $0.29 |
| 10y EPS Variance | 10.4% |
| 10y EPS SD | $0.32 |
| 4y EPS SD | $0.23 |
| 10y AVG+SD | 0.96x |
| 4y AVG+SD | 1.21x |
| Average 10 Year Growth | 18.2% |
| 10Y Growth (3Y AVG) | 276.2% |
| PE Ratio Average | 26.91x |
| PE Ratio Average 3 Years | 25.13x |
| ETP% Vs AA Bond | 4.0% |
| AVG PE 3Y*PTB Ratio | 125.40 |
Cost of Capital
| Market Cap (TTM) | $46,232,809,429 |
| Enterprise Value (TTM) | $45,329,793,363 |
| Long Term Debt (TTM) | $753,867,560 |
| Interest Expense (TTM) | $40,765,425 |
| ROIC (TTM) | 22.0% |
| Income Before Tax (TTM) | $2,695,435,889 |
| WACC | 10.1% |
| Total Investments (TTM) | $0.00 |
Fair Value
| Factor of Safety Buffet | 1.99x |
| Forecast EPS 1y | $1.13 |
| Forecast EPS 5y | $1.54 |
| EPS 5y Growth | 46.9% |
| Average P/E | 26.91x |
| Discount Rate | 9.0% |
| Owner Earnings Growth Rate | 8.0% |
| Share Price 10Y | $16.93 |
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