The ResMed (ASX:RMD) share price is up 25% in 2020

Shareholders of healthcare company ResMed Inc (ASX:RMD) are sitting on gains of almost 25% so far this year – but they have had to endure a fair amount of share price volatility to get here.

| More on:
Young doctor raising arms in air with hands in fists celebrating a new development

Image source: Getty Images

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

This has been a frustrating year for shareholders of California-based healthcare company ResMed Inc (ASX: RMD). Despite the ResMed share price rising almost 25% to $27.41 so far in 2020, shareholders have had to endure a fair amount of volatility to get here. It seemed like every time ResMed shares looked set to cross over the psychological $30 barrier, they ended up crashing lower.

What does ResMed do?

ResMed develops medical equipment for the treatment of respiratory conditions, with a particular focus on sleep apnoea. Early in the COVID-19 pandemic, the company announced it had ramped up production of various ventilator systems and equipment to help treat coronavirus patients suffering from respiratory complications.

What has driven the ResMed share price volatility?

The ResMed share price plunged 7% the day the company released its full year results to the market back at the beginning of August. This was despite ResMed reporting a 13% increase in revenues year on year to US$3 billion, and a 40% jump in net operating profit.

Revenues across most geographies were boosted due to increased demand for ResMed's ventilators during the COVID-19 pandemic. However, demand for the company's sleep devices in key markets across the United States, Canada and Latin America declined during the year.

ResMed's first quarter FY21 results, released late October, told a similar story, and yet the share price rose sharply in response. Revenues for the quarter increased 10% against the prior comparative period to US$751.9 million, while net operating profit surged 27%.

Again, the result was driven primarily by increased sales of ventilators, partially offset by decreased demand for sleep devices in the US, Canada, and Latin America. Selling, general and administrative expenses also continued to decline due to prudent cost management during the pandemic.

Due to how similar these two results actually were, it's hard to say why the market responded so differently to them. However, it's worth noting that there was a fair amount of noise in ResMed's FY19 result as the company settled some large legal expenses that year, which inflated the relative year-on-year performance for FY20. The first quarter result for FY21 excludes a lot of that noise, giving a cleaner picture of the company's underlying performance.

There is also the simple fact that general optimism around the rollout of a COVID-19 vaccine early in 2021 has boosted the performance of the ASX more broadly. The release of ResMed's FY20 results coincided quite closely with the introduction of Melbourne's harshest lockdown, and Victoria's COVID-19 cases were spiking. The performance of the broader S&P/ASX 200 Index (ASX: XJO) was languishing during this period, and only really started gathering momentum again in early November – around the time ResMed released its first quarter FY21 result.

The biggest disappointment for ResMed shareholders is that the company has underperformed relative to New Zealand-based competitor Fisher & Paykel Healthcare Corp Ltd (ASX: FPH). The Fisher & Paykel share price has gained close to 44% so far this year without the same level of volatility.

As COVID-19 vaccine rollouts progress throughout the world in 2021, it will be interesting to track both companies' earnings to see how dependent they have been on increased ventilator sales.

Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Healthcare Shares

a biomedical researcher sits at his desk with his hand on his chin, thinking and giving a small smile with a microscope next to him and an array of test tubes and beackers behind him on shelves in a well-lit bright office.
Healthcare Shares

Broker says this ASX 200 biotech stock is a top buy

Let's see what Bell Potter is saying about this biotech.

Read more »

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

Why CSL shares are a buy today despite the looming Trump tariffs

A leading expert believes CSL shares are still trading for a bargain today. Here's why.

Read more »

A businesswoman pulls her glasses down in shock to look at the bad news on her computer.
Healthcare Shares

Why did the Telix share price just crash 16%?

Investors are sending the Telix share price plunging today. But why?

Read more »

Broker analysing the share price.
Healthcare Shares

Expert: 2 ASX healthcare stocks to avoid before reporting season

Not all healthcare stocks are created equal.

Read more »

A group of people in a corporate setting do a collective high five.
Healthcare Shares

Should I buy Pro Medicus or CSL shares ahead of earnings season?

The ASX healthcare sector may be currently undervalued.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Healthcare Shares

Why Mesoblast shares can keep storming higher

More big returns could be on the way for buyers of this high risk stock according to Bell Potter.

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

The Mesoblast share price just rocketed 38%! Here's why

ASX investors just sent the Mesoblast share price up 38%. But why?

Read more »

couple having a happy discussion with a banker
Healthcare Shares

Expert: 4 ASX healthcare stocks to buy ahead of reporting season

Could these ASX healthcare stocks be good additions to your portfolio?

Read more »