If you're a younger investor and have the luxury of taking a 10-year + view on your equity investments you'll want to find a company that has serious potential to consistently grow revenue, profits, and dividends long into the future.
At the end of the day share prices will follow profits and dividends higher or lower over time as capital market assets are valued on their potential to return future income streams to investors.
As such home health and sleep treatment specialist ResMed Inc. (CHESS) (ASX: RMD) ticks the boxes for investors seeking long-term growth.
Let's take a look at five reasons to suggest the group's outlook is strong.
- Track record – markets are forward looking but ResMed has a second-to-none track record of financial growth thanks to its large addressable market of patients. It has grown revenue, profits, and dividends like clockwork every year since 2011.
- Founder / family led – ResMed is led by a founding family including its CEO Mick Farrell. As such management's focus is on the long-term development of the business, which means shareholders' interests are closely aligned to those of management.
- Narrow moat – ResMed operates in the medically complex and regulated area of home health and sleep apnea treatments via medical device sales and as such it's hard for competitors to compete away its profit growth. Margins are key and the business should maintain them over the long term.
- The future – ResMed has invested heavily in the digital and home health space including the recent US$800 million Brightree software-as-a-service acquisition. This cloud-based business supports its ambitions to be the "world's best tech-driven medical device company".
- Valuation – given the group's outstanding track record and outlook its valuation on around 24 annualised earnings per share of US$3.08 cents looks reasonable. The valuation is roughly in line with its historical earnings multiple and ResMed has the opportunity to grow margins over the long term.
It's also worth noting ResMed has the tailwind of the ever-growing public and private sector spend on healthcare globally, although of course it faces substantial competitive and regulatory risks.
Its valuation is the other critical consideration for investors as paying too much for a fast-growing business is a common investing mistake. However, I think at less than A$9.30 per share now may be a reasonable entry point given the Australian dollar also has room to move lower versus the U.S. dollar.
