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Here's Why ResMed Inc. Stock Spiked Today

By Cory Renauer - Oct 27, 2017 at 4:03PM

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Another strong earnings report suggests this company's growth story isn't over yet.

What happened

Sleep apnea specialist, ResMed, Inc. (RMD -0.01%) pleased investors with a positive fiscal first-quarter report after the bell yesterday. Another quarter of double-digit year-to-year growth on the top and bottom lines pushed the stock up as high as 11.5% this morning. The shares have since settled to a gain of 7.7% as of 3:09 p.m. EDT on Friday. 

So what 

With an estimated 1 in 5 Americans suffering from breathing issues related to sleep disorders, demand for ResMed's continuous positive airway pressure (CPAP) systems was high enough to push the top line up by double digits. Fiscal first-quarter sales rose by a healthy 13%, to $523 million.

A hand drawing digits connected by arrows in an upward sloping pattern.

Image source: Getty Images.

Investors were also pleased with the direction last year's acquisition of Brightree is taking. The $800 million splurge on the cloud-based post-acute care service provider raised some eyebrows, but yesterday's results should lay some concerns to rest. Brightree revenue for the first quarter was $38.1 million, an increase of 15% compared to the year-ago period.

Now what

Adoption rates of CPAP systems give this market leader plenty of room to grow, but the stock has climbed to a tall perch that you wouldn't want to fall from. ResMed shares weren't cheap going into today's run-up, and at 35 times trailing earnings, the price seems to reflect an expectation for a return to double-digit growth. 

That said, investors holding these shares over the long term have plenty to smile about. While the devices are gaining recognition in the U.S., they're practically unheard of around the globe. That's changing quickly as fiscal first-quarter sales of masks and other accessories outside of North America and Latin America grew 19% at constant-currency exchange rates. Keep your eyes peeled for more signs the razor-and-blade model that led to explosive growth in the domestic market works just as well abroad.

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