Why the ResMed Inc (CHESS) share price is tumbling today

Shares in ResMed Inc. (CHESS) (ASX:RMD) are down today after its quarterly results.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares in sleep treatment specialist ResMed Inc. (CHESS) (ASX: RMD) fell around 6% to $7.40 this morning after the company revealed a profit of US$104.3 million on revenues of US$453.9 million for the quarter ending March 31 2016.

The company declared a quarterly dividend of US3 cents per share.

Once again the standout region was the Americas with revenue up 12% over the prior year's quarter to US$282.2 million, with revenue in Europe and the rest of the world up 3% on a constant currency basis to US$171.1 million.

The company split out earnings on a non-GAAP accounting basis to deliver a profit of US$112.4 million, up 4% on the prior corresponding quarter. However, the unadjusted (GAAP) profit was flat, which is a result the company blamed on changes in product mix, average selling prices and geographic mix – all of which contributed to falling gross margins.

Large medical device retailers like ResMed or hearing aid manufacturer Cochlear Limited (ASX: COH) rely on the market-leading nature of their products to charge premium prices and grow the all-important profit margins.

Falling margins for medical device or healthcare businesses can spell trouble in the form of competitive pressures and are a traditional 'sell signal' for Wall Street analysts schooled to focus on this metric almost above all others.

Today's share price falls are no big surprise therefore and seem a short-term overreaction when you consider the double-digit revenue growth posted in the US, and fact that adjusted (non-GAAP) earnings lifted 4% over the prior corresponding quarter.

ResMed also cancelled its share buyback over the period, as it needs to save cash after taking its biggest strategic gamble yet with the US$800 million acquisition of US digital healthcare giant Brightree Inc.

Part of the attraction of Brightree is likely its margin-boosting potential and how the acquisition plays out will be a key driver as to the share price's future direction.

In my opinion today's price falls are a mild overreaction and selling for $7.40 ResMed is good value for long-term focused investors after a slice of a globally-leading healthcare giant.

Motley Fool contributor Tom Richardson owns shares of ResMed Inc.. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »