RESMED INC (NYSE:RMD) – A Strong Contender for Quality Investors

RESMED INC (NYSE:RMD) stands out as a potential candidate for quality investors, meeting key criteria such as strong profitability, consistent growth, and efficient capital allocation. The company, which specializes in digital health and cloud-connected medical devices for respiratory disorders, demonstrates financial health and operational excellence. Below, we examine why RMD aligns with the principles of quality investing.

Key Strengths of RESMED

• High Return on Invested Capital (ROIC): RMD’s ROIC (excluding cash and goodwill) is an impressive 54.14%, far exceeding the 15% threshold for quality stocks. This indicates the company generates substantial returns from its capital investments.
• Low Debt Relative to Cash Flow: With a Debt-to-Free Cash Flow ratio of 0.43, RMD could pay off its debt in less than six months using current cash flow, reflecting strong financial discipline.
• Revenue and Profit Growth: Over the past five years, revenue has grown at an annualized rate of 8.51%, while EBIT growth has been even stronger at 16.83%, signaling improving operational efficiency.
• Profit Quality: The company converts 91.20% of net income into free cash flow, demonstrating reliable earnings quality and effective cash generation.

Fundamental Analysis Summary

RMD earns a solid 7/10 in our fundamental assessment, with particularly high marks for profitability and financial health. Key highlights include:

• Profitability: Exceptional margins, with an operating margin of 32.10%, outperforming 99.47% of industry peers.
• Growth: Consistent past growth in revenue and earnings, with analysts expecting continued expansion.
• Valuation: While not cheap, RMD trades at a reasonable premium relative to industry peers, justified by its strong fundamentals.

For investors seeking high-quality companies with durable competitive advantages, RESMED presents a compelling case.

Our Caviar Cruise screener lists more quality stocks and is updated regularly.

Disclaimer

This is not investing advice. The observations here are based on current data, but investors should conduct their own research before making decisions.