Why ResMed Shares Were Rocked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of ResMed (NYSE: RMD  ) , a manufacturer of sleep-device and respiratory therapies, fell as much as 13% after the company reported third-quarter earnings results.

So what: For the quarter, ResMed delivered a 5% sales increase to $357.7 million with overseas revenue ever-so-slightly outpacing domestic growth. Adjusted earnings per share for the quarter came in at $0.56, which was a modest improvement from the $0.49 reported in the year prior. However, Wall Street had been looking for ResMed to report $0.58 in EPS on $373.5 million in sales, meaning it missed decisively on both fronts. While remaining upbeat about the future, CEO Mick Farrell pointed to tougher competition as the reason ResMed fell short of the Street's expectations.

Now what: Weaker-than-expected results are certainly not going to help investors get a better night's sleep, but I see plenty of positives in ResMed's future. Ultimately, there are few companies that have a stranglehold on the sleep therapy device market like ResMed -- and, as we know, niche sector investments often have strong pricing power and consistent cash flow. In addition, ResMed has a diverse pipeline of new product offerings that should accelerate growth into next year well beyond the 5% revenue growth we saw this quarter. Following today's drop, I would certainly suggest adding ResMed to your watchlist moving forward.

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