Reporting season can be a hairy experience for many S&P/ASX 200 Index (ASX: XJO) stocks.
The market will react instantly to the contents of the annual report, triggering some violent movements in the share price.
One longtime favourite in the ASX 200 has copped precisely this treatment, with its valuation plummeting this month.
But one expert has taken advantage of the short-term fear to buy more of this quality business.
Let's take a look:
Image source: Getty Images
Market unimpressed with shrinking margins
Resmed CDI (ASX: RMD) has made many ASX investors wealthy over the past couple of decades with its rapid growth and dominance in a massive market.
However, the crowd did not like the look of its annual results released earlier this month.
ResMed's share price fell 10% within minutes, and it's been a 19.8% loss all up since the morning of 3 August.
The 2023 financial year earnings per share (EPS) for the sleep apnoea devices maker fell 9 cents short of expectations.
"One disappointment that could be weighing on the ResMed share price was the company's margin performance," said The Motley Fool's James Mickleboro.
"Analysts at Macquarie were expecting improvements in the fourth quarter, but the very opposite happened. ResMed's gross margin contract was 200 basis points for the three months, which dragged its full-year gross margin down 80 basis points to 55.8%."
ResMed management blamed the underperformance on higher input costs.
She'll be apples though
The great news for long-term investors is that this dip could be a golden buying opportunity.
Shaw and Partners portfolio manager James Gerrish certainly thought so, revealing his team had added to its existing holding.
"We stepped up and increased our weighting to 5%, believing the selling is overdone," Gerrish said on a Market Matters Q&A.
"After falling towards $27 we have indeed elected to increase our position in RMD… with the view that current margin issues can be overcome."
The other qualitative factor that seems to be worrying investors is the impact of current weight loss fads such as Ozempic.
The logic goes that if people lose weight then it decreases their chances of experiencing sleep apnoea, and therefore the demand for ResMed's machines plunges.
Gerrish thinks this isn't yet a huge influence on ResMed's actual fortunes.
"At this stage, the concerns [seem] overinflated.
"However, if the [drug] funding situation changes, and greater reimbursements are offered, this could become more material."
Many other professionals agree with Gerrish's bullishness.
According to CMC Markets, an overwhelming 19 out of 25 analysts still rate ResMed as a buy.
