Are you looking for a great investment idea within the S&P/ASX 200 Index (ASX: XJO)?
Below are 3 reasons why I think you should consider buying ResMed Inc (ASX: RMD) shares this month.
Market size
ResMed is a global leader in developing medical devices for respiratory conditions such as sleep apnoea and chronic obstructive pulmonary disease (COPD). After starting out life in Australia, ResMed now has headquarters in the US, placing it at the centre of a strong market with the Americas Sleep and Respiratory Care segment making up over half of ResMed's 2Q20 revenue. Outside of the US, ResMed also has a large presence throughout Europe and Asia, along with a growing Software-as-a-Service (SaaS) business.
ResMed's key markets in sleep apnoea and COPD are largely undiagnosed, with only around 20% of people who have sleep apnoea currently being diagnosed. Additionally, high-growth markets such as China, India, Brazil and Eastern Europe are currently largely undiagnosed for COPD. As awareness increases, diagnosis will follow, giving ResMed a long runway for growth in a large and expanding market.
Growth
ResMed has done an outstanding job growing its business and shareholder value in the past. ResMed shares have increased over 7.5x in just the last 10 years, and that doesn't include a small dividend which is paid quarterly.
ResMed's continued revenue growth comes not only from its growing markets but by also expanding markets (i.e., new areas), increasing product range and through bolt-on acquisitions. To support this, ResMed invests around 7-8% of revenue into research and development projects to support future growth. One growing segment is its SaaS solution to improve care in out of hospital settings. This segment now makes up around 12% of ResMed's total revenue.
Pleasingly, ResMed is also growing its bottom line. The company reported diluted earnings per share growth of 28% for the quarter ending December 2019 over the prior corresponding period. This was a strong result which was helped by another gross margin increase.
Current market conditions
Of course, today's market dynamics are a little different due to the global pandemic created by COVID-19. However, this virus greatly affects a patient's respiratory system. As a result, ResMed has been called on by governments around the world to help the fight against COVID-19, with the following statement made by ResMed's CEO Mick Farrell in late March:
"We are working with governments, health authorities, hospitals, physicians, and patients worldwide to assess their needs, and to deliver the ventilation therapy that is essential to treat the respiratory complications of COVID-19. Our primary focus is to maximize the availability of ResMed ventilators and other respiratory support devices for the patients that need them most."
We have already seen the Australian government building towards around 10,000 ventilators for intensive care units (ICU). This is significantly greater than the 2,300 ventilators attached to ICU beds as of late March. With this, the government made an order to ResMed for 1,000 invasive ventilators last month, along with the need to produce non-invasive ventilators.
Of course, the best-case scenario is that these ventilators will not be required. On 23 March, Prime Minister Scott Morrison stated: "At this point we have a very low number of patients that are actually in ICU, but of course we expect that to change with the spread of the virus in the future."
Although the number of intensive care patients is currently low, it is prudent that the health system prepares for a more severe scenario.
Foolish takeaway
Due to the current market conditions, demand for ResMed's products should remain strong. ResMed is expected to deliver its third-quarter earnings at the end of this month on 30 April. However, you can't have your cake and eat it too. The continued demand for its products has seen the ResMed share price remain resilient throughout the current bear market. ResMed shares are only down around 7% from their all-time highs.
However, despite this, I think ResMed shares still offer investors great growth potential. Additionally, I believe ResMed is a great option for investors looking for lower volatility shares as demand for ResMed's products should remain strong.
