A leading company in an important industry ResMed Inc. (ASX: RMD) is a leader in the sleep treatment market, with a range of cloud enabled products designed to care for people with sleep apnea, COPD and other chronic diseases. This leading position has resulted in the the company's share price growing at an annualised rate of 17.9% over the last decade, excluding dividends.
Healthcare continues to rise in importance as a major topic on social and political agendas around the world. Aging populations, an increase in chronic disease, growing costs and a shortage of doctors require better solutions and technologies.
Despite this the ResMed share price dropped after an underwhelming second quarter result, delivered on 24 January 2019. For Q2 the company delivered 9% revenue growth to $651 million (on a constant currency basis) and Non-GAAP operating profit growth of 15%, to $181 million.
Capital allocation
It is pleasing to see the company focus on the long term, with a stated strategy to 2025. ResMed invests approximately 7% of its revenue back into research & development. This helps the company maintain and grow its market share through its range of quality products.
ResMed isn't just investing in itself however, with a number of acquisitions being made in recent years. The company has made numerous acquisitions in its key field of sleep apnea – most recently the purchase of South Korean based HB Healthcare, on 7 March 2019. ResMed has also invested in emerging areas such as out-of-hospital software-as-a-service offerings, through its 5 November 2018 acquisition of MatrixCare. The strategic decisions on the growing digital health and software-as-a-service trends highlights an understanding of where healthcare is moving.
The patent dispute
One concern that was lingering with ResMed until 21 February 2019 was the ongoing patent infringement dispute between ResMed and Fisher & Paykel Healthcare Corp Limited (ASX: FPH). In February both companies agreed to settle all of their outstanding patent infringement disputes, in all venues around the world. Most of the terms are confidential however, all ongoing proceedings ceased and both companies are paying their own legal expenses.
Foolish bottom line
ResMed has a long runway for growth, with sleep apnea being a grossly under-diagnosed medical condition. As doctors and potential patients alike become more aware of the condition, ResMed should see a steady increase in the adoption of its CPAP machines and its share price.
ResMed will report its third quarter FY19 earnings on 2 May 2019.
If you like the sound of ResMed, here are some other high quality growth companies.
