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Why ResMed Is Plunging Today

By Keith Speights – Updated Apr 22, 2019 at 9:41PM

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Disappointing quarterly results took a toll on the medical-device stock.

What happened

Shares of ResMed (RMD -0.09%) plunged 17% lower as of 11:38 a.m. EST on Friday. The medical-device company announced its fiscal-year 2019 second-quarter results before the market opened -- and investors weren't happy with what they heard.

ResMed posted Q2 adjusted earnings per share (EPS) of $1.00, higher than the average analysts' estimate of $0.95. However, the company's revenue of $651.1 million came in well below Wall Street's expectation of $672.9 million.

Sleeping man wearing CPAP mask.

Image source: Getty Images.

So what

The main problem for ResMed was just how badly it missed on revenue expectations for the fiscal 2019 second quarter. Although the company increased revenue by 8% year over year, its core businesses didn't perform as well as analysts thought they would.

ResMed delivered solid results in the U.S., Canada, and Latin America. Total revenue in these areas grew 15% over the prior-year period. However, it was a different story in other regions. ResMed's total revenue from its sleep and respiratory care products in Europe, Asia, and other international markets fell 2% year over year, although on a constant-currency basis, revenue grew by 1% year over year.

The company's overall growth was also boosted by acquisitions, adding to concerns about its performance in the existing core businesses. ResMed closed on the acquisition of home-care software provider HEALTHCAREfirst in fiscal Q1. It also completed its buyout of long-term- and post-acute-care software provider MatrixCare in fiscal Q2.

But while ResMed's revenue growth didn't meet expectations, it's important for investors to keep things in perspective. Only a few days ago, the stock hit an all-time high. Even with the big drop on Friday, ResMed is still up more than 120% over the last five years.

Now what

The main things to watch with ResMed now are how well the company executes on its strategy of launching new products and expanding into additional markets. ResMed's new AirFit F30 and AirFit N30i sleep apnea masks should continue to enjoy strong sales momentum. The big question marks for the company are related to the integration of its multiple acquisitions, including the recently announced purchase of Propeller Health, which provides connected health solutions for people living with chronic obstructive pulmonary disease (COPD) and asthma.

High-flying stocks like ResMed can be very volatile. Any bad news can cause them to fall quickly, as we saw on Friday. On the other hand, these stocks can rebound quickly as well.

Check out the latest ResMed earnings call transcript.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends ResMed. The Motley Fool has a disclosure policy.

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