- If you are wondering whether ResMed at around US$240.15 is offering good value today, you are not alone. The stock sits at a point where valuation really matters for the next move.
- Over the short term the share price has been volatile, with a 7.3% decline over the last week and a 13.0% decline over the last month, even though the 1 year return sits at 10.0% and the 5 year return at 30.9%.
- Recent headlines around ResMed have focused on its position in sleep and respiratory care devices and ongoing attention on its product portfolio, as investors weigh how demand trends and competitive pressures could affect sentiment. This backdrop has helped frame the recent share price moves as the market reassesses what it is willing to pay for the business.
- On our checks, ResMed scores a 5 out of 6 on valuation, suggesting it screens as undervalued on most of the metrics assessed. You can see the breakdown in this valuation score of 5. Next we will look at how different valuation approaches try to pin down a fair price, and why there may be an even better way to think about value that we will come back to at the end.
Approach 1: ResMed Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model projects a company’s future cash flows and then discounts them back to today’s dollars to estimate what the business might be worth right now.
For ResMed, the model uses a 2 Stage Free Cash Flow to Equity approach built on cash flow projections. The latest twelve month free cash flow is about $1.78b. Analysts provide detailed forecasts for the next few years, and beyond that Simply Wall St extrapolates the trend, with projected free cash flow for 2030 of about $1.97b.
When all those future cash flows are discounted back to today, the DCF model arrives at an estimated intrinsic value of about $277.37 per share. Compared with the recent share price around $240.15, this implies ResMed trades at a discount of roughly 13.4%, which indicates the market price is below this model’s estimate of value.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests ResMed is undervalued by 13.4%. Track this in your watchlist or portfolio, or discover 50 more high quality undervalued stocks.
Approach 2: ResMed Price vs Earnings
For a profitable company like ResMed, the P/E ratio is a useful quick check because it links what you pay directly to the earnings the business is already generating. It also captures what the market is willing to pay for each dollar of profit.
Higher growth expectations and lower perceived risk usually justify a higher, or "richer", P/E ratio, while slower expected growth or higher risk often line up with a lower multiple. So context really matters when you look at a single number.
ResMed currently trades on a P/E of 23.44x. That sits below the Medical Equipment industry average of about 27.52x and also below the peer group average of 33.52x. Simply Wall St’s Fair Ratio for ResMed is 31.40x, which is its proprietary view of what a reasonable P/E could be, given factors like earnings growth, industry, profit margin, market cap and risk profile.
This Fair Ratio can be more useful than a simple comparison with peers or the industry because it adjusts for company specific traits rather than treating all medical equipment names as identical. With ResMed’s current P/E of 23.44x sitting well under the 31.40x Fair Ratio, the shares screen as undervalued on this metric.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your ResMed Narrative
Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives on the Community page to attach your own story about ResMed to the numbers. You can link what you believe about its future revenue, earnings and margins to a financial forecast and fair value. You can then compare that fair value with the current price to help you decide whether to act. The platform keeps your view updated as news or earnings arrive. One investor might build a more optimistic ResMed Narrative around the US$325 fair value, while another might lean on a more cautious US$215 view. You can easily see where your own assumptions sit in that range.
Do you think there's more to the story for ResMed? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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