ResMed (RMD): The Market Has Priced a Threat That Has Not Shown Up in the Numbers

Investment Summary

ResMed is the largest manufacturer of the devices used to treat obstructive sleep apnoea, and its shares have fallen from a 52-week high of $293.81 to $191.89 at the close on 23 July 2026 — a drawdown of roughly 35%. Almost nothing in the company's reported results explains that move. In its most recent quarter, revenue grew 11% to $1.43 billion, non-GAAP gross margin expanded 290 basis points to 62.8%, and non-GAAP earnings per share rose 21% to $2.86. The de-rating is not a verdict on what the business has done. It is a verdict on what investors believe GLP-1 weight-loss drugs will eventually do to it.

Our view is that the market has priced a structural demand shock into a business that is still compounding, and that the best evidence currently available — including a 1.7 million-patient dataset drawn from ResMed's own connected devices — points in the opposite direction to the fear. We are adding RMD as our newest research position. Rating: Buy. Twelve-month fair-value range: $250 to $275, with a midpoint of approximately $262 — roughly 30% above the current price. The derivation of that range is set out in the valuation section below, and the reasons it may prove wrong are set out in full in the risk section.

The setup, in seven numbers:

• Share price: $191.89 at the close on 23 July 2026, against a 52-week range of $180.27 to $293.81.

• Market capitalisation: approximately $28.5 billion.

• Third-quarter revenue: $1.43 billion, up 11% year on year and 8% in constant currency.

• Non-GAAP gross margin: 62.8%, an expansion of 290 basis points year on year.

• Non-GAAP earnings per share: $2.86 in the quarter, up 21% year on year.

• Free cash flow: approximately $1.75 billion over the trailing twelve months, against operating cash flow of $1.89 billion and capital expenditure of $136 million.

• Valuation: a forward price-to-earnings multiple in the region of 17 times, against a five-year history that has generally sat materially higher.

A stock that falls 35% while earnings per share rise 21% is not being repriced on results. It is being repriced on a story about the future. The whole analytical question is whether that story is right.

Business Overview: What ResMed Actually Sells

Obstructive sleep apnoea is a condition in which the airway repeatedly collapses during sleep, interrupting breathing dozens or hundreds of times a night. Left untreated it is associated with hypertension, cardiovascular disease, metabolic disorder and daytime impairment. The standard treatment is positive airway pressure therapy — a bedside device that pushes a controlled stream of air through a mask to hold the airway open. ResMed makes both halves of that system, and a third piece that matters more than most investors appreciate.

The revenue splits into three parts. In the most recent quarter, devices generated $735.7 million, up 9%; masks and accessories generated $524.8 million, up 15%; and the residential care software segment generated $170.9 million, up 6%. Geographically, the Americas contributed $818.7 million and Europe, Asia and other markets $441.8 million, the latter growing 16% as reported but 7% in constant currency — a reminder that a meaningful part of this year's headline growth is currency translation rather than volume.

The single most important line in that paragraph is that masks grew faster than devices — 15% against 9%. Devices are the razor; masks, tubing and filters are the blades. A patient who starts therapy replaces consumables on a recurring basis for as long as they remain compliant, which produces a high-margin, annuity-like revenue stream layered on top of a lumpier hardware cycle. Mask and resupply growth is therefore the cleanest available proxy for whether the installed base of patients is expanding and staying on therapy. It is currently accelerating away from device growth, not converging with it.

The third piece is the software and data layer. ResMed's devices are cellular-connected and report nightly usage data to a cloud platform used by patients, physicians and the home medical equipment distributors who supply the machines. That infrastructure produces two things: a compliance-management tool that materially improves adherence rates, which is what payers reimburse against; and one of the largest longitudinal datasets on real-world respiratory therapy in existence. As will become clear, that dataset is now central to the investment debate.

The Setup: Why the Stock Fell

The decline has a single, identifiable cause, and it is not company-specific execution. Beginning in mid-January 2026, ResMed shares entered a slow and almost uninterrupted slide, reaching a maximum drawdown of roughly 34% in early June before a partial recovery and renewed selling into July. Throughout, the argument being expressed in the share price has been the same one: that GLP-1 receptor agonists — the weight-loss and diabetes drugs sold as Ozempic, Wegovy, Mounjaro and Zepbound — will shrink the population that needs a CPAP machine.

The logic is straightforward, which is precisely why it has been so effective at moving the stock. Obesity is the dominant modifiable risk factor for obstructive sleep apnoea. GLP-1 drugs produce substantial, sustained weight loss at population scale. If tens of millions of people lose fifteen to twenty percent of their body weight, some proportion of them will see their apnoea resolve or fall below the threshold at which therapy is prescribed. Fewer patients, fewer devices, fewer masks, a smaller annuity. The market has taken that syllogism, assumed it operates on a near-term timeline, and applied it to the terminal growth rate of the entire business.

We do not think the syllogism is absurd. Directionally, over a long enough horizon, it is probably true at the margin. What we think is wrong is the magnitude and the timing the market is currently applying to it — and the fact that the observable evidence, so far, runs the other way.

The Thesis: What the GLP-1 Data Actually Shows

On its most recent earnings call, ResMed presented outcomes from a cohort of 1.7 million patients drawn from its connected-device platform. Patients already on positive airway pressure therapy who subsequently began GLP-1 treatment showed resupply rates 5.1% higher at two years and 6.2% higher at three years than comparable patients on therapy alone. A separate claims analysis covering approximately 2.1 million patients found that individuals prescribed both therapies were roughly 11% more likely to initiate airway pressure therapy than those prescribed the device alone.

That is the precise inverse of the bear case. Rather than substituting for the device, the drug appears — so far — to function as a diagnostic and engagement funnel. The mechanism is intuitive once stated. A patient who begins a GLP-1 has, almost by definition, entered a clinical relationship in which their weight, their sleep and their cardiometabolic risk are being actively examined. Screening follows. Sleep apnoea is diagnosed. Therapy is initiated. And a patient sufficiently motivated to inject a weekly medication is, empirically, a patient more likely to persist with a mask.

Chief executive Mick Farrell has been explicit about the company's reading of this, describing GLP-1s on the most recent call as "truly a megatrend and a once-in-a-generation demand gen opportunity for ResMed." That is a management team talking its own book, and should be weighed accordingly. But the underlying figures are drawn from device telemetry and payer claims rather than survey sentiment, and they have been consistent across successive quarters.

The second pillar of the thesis is the size and shape of the untreated population. Research published in The Lancet Respiratory Medicine, which ResMed co-sponsored, estimated that 936 million adults worldwide have obstructive sleep apnoea, of whom more than 85% are undiagnosed. The binding constraint on ResMed's growth has never been the number of people with the condition. It has been the number of people who find out. In a market where roughly six in seven sufferers are invisible to the healthcare system, a therapy that pulls millions of overweight adults into regular clinical contact is, on the current evidence, additive to the diagnostic funnel rather than subtractive from the patient pool.

We want to be careful here, because this is the part of the argument that could age badly. Both datasets are company-generated, cover two- and three-year windows, and describe a period in which GLP-1 use was still concentrated among relatively new adopters. They tell us what has happened so far. They do not tell us what a cohort ten years into sustained weight loss looks like, and no one currently has that data. The honest position is that the evidence available today contradicts the bear case, and that the evidence available today is not yet long enough to settle it.

Competitive Position

ResMed holds an estimated 55% to 60% of the global CPAP device market as of early 2026 — a position substantially inflated by the misfortune of its principal competitor. In 2021 Philips recalled several million Respironics sleep and respiratory devices over concerns about degrading sound-abatement foam, and effectively vacated the market for three years. ResMed absorbed the displaced demand, expanded manufacturing, and locked those patients into its own cloud and resupply ecosystem.

That windfall is now reversing. Philips has been rebuilding its position, and industry expectations compiled by sell-side channel work suggest ResMed's share settling into a 49% to 52% range over the next one to three years. Any forecast for this business must assume share loss. The relevant question is whether it is orderly, and whether the market as a whole grows faster than ResMed's share erodes. The global sleep apnoea device market is estimated at around $6.9 billion in 2025 and projected to reach approximately $11.6 billion by 2032, a compound growth rate near 7.6%. A company losing roughly a point of share a year into a market growing at that rate still grows.

The competitive moat is not the device itself, which is replicable. It is the accumulated switching cost around it: the connected-care platform that home medical equipment distributors have built their compliance workflows on, the physician familiarity, the mask fit libraries, and the resupply logistics. Fisher & Paykel Healthcare competes credibly in masks and humidification; Inspire Medical Systems offers an implantable neurostimulation alternative for patients who cannot tolerate a mask. Neither displaces the mass-market therapy. Philips is the only competitor with the scale to compress ResMed's pricing, and rebuilding clinician trust after a safety recall is slow work.

Financial Analysis

Through the first nine months of fiscal 2026, ResMed reported revenue of $4,189.8 million, up 10% year on year and 8% in constant currency, with GAAP diluted earnings per share of $7.79 and non-GAAP diluted earnings per share of $8.22. On that trajectory the full year lands near $5.6 billion of revenue and non-GAAP earnings per share of roughly $11 — our estimate, not company guidance, and one the fourth-quarter release will test directly.

The margin story is the more interesting one. Non-GAAP gross margin of 62.8% represents 290 basis points of year-on-year expansion, driven by manufacturing efficiency and lower component costs rather than price increases. Management has guided full-year gross margin to a 62% to 63% band, selling and administrative expense to 19% to 20% of revenue, and research and development to 6% to 7%. That structure implies operating margins in the mid-thirties — unusual durability for a medical device manufacturer, and the reason modest revenue growth converts into low-double-digit earnings growth.

The balance sheet is the quiet strength. At 31 March 2026 the company held $1,660.5 million in cash against $664.1 million of total debt — a net cash position approaching $1 billion, before the proceeds of the divestiture discussed below. Operating cash flow was $554 million in the quarter alone, and free cash flow over the trailing twelve months was approximately $1.75 billion. A company generating that much cash, carrying no meaningful leverage, does not face the kind of existential timeline that a 35% drawdown normally implies.

Capital Allocation and the MatrixCare Decision

In July 2026 ResMed agreed to sell MatrixCare, its long-term and post-acute care software business, to Frazier Healthcare Partners for $490 million, with completion expected in the first quarter of fiscal 2027. The unit serves more than 15,000 healthcare providers across skilled nursing, senior living and long-term care, and on preliminary fiscal 2026 figures generated approximately $220 million of revenue and $55 million of operating profit.

We think this deserves to be assessed honestly rather than spun. ResMed paid roughly $750 million for MatrixCare in 2018 and is selling it for $490 million eight years later. On the face of it that is a loss of value, and a fair criticism of the diversification strategy that produced it. The sale price of around 2.2 times revenue and roughly nine times operating profit is also well below the multiple ResMed's own equity commands, so the transaction is modestly dilutive to reported earnings before any offsetting action.

The argument for it is strategic rather than arithmetic. It removes the slowest-growing segment in the group — the residential care software line grew 6% against 15% for masks — and concentrates management attention and capital on sleep and breathing health. The company has said proceeds will fund general corporate purposes and shareholder returns, including an accelerated share repurchase. Buying back stock at roughly 17 times forward earnings, with the balance sheet in net cash, is a defensible use of the money. Over the three years to March 2026, ResMed deployed $3.2 billion of capital: 31% to research and development, 30% to acquisitions, 29% to buybacks and 10% to dividends. The quarterly dividend stands at $0.60 per share, a yield of roughly 1.25% at the current price, and $175 million of stock was repurchased in the third quarter with at least as much planned for the fourth.

Valuation

Our approach here is deliberately unheroic. We do not need to assume multiple expansion or an acceleration in growth to justify the position.

Take fiscal 2026 non-GAAP earnings per share of approximately $11. Assume revenue growth decelerates to 8% — below the current 11% reported and consistent with share loss to Philips — and that stable gross margins plus continued buybacks convert that into roughly 9% earnings growth. That produces fiscal 2027 earnings per share near $12.00. Applying a multiple of 21 times gives $252; applying 23 times gives $276. That is the source of our $250 to $275 fair-value range, with a midpoint around $262.

Those multiples are not aggressive for a business with mid-thirties operating margins, net cash, a recurring consumables annuity and high-single-digit organic growth. They are simply the multiples the market applied to this company routinely before January 2026. The stock currently trades near 17 times forward earnings. In other words, the upside does not require the market to fall in love with ResMed again; it requires only that the market stop pricing terminal decline.

For external calibration: the consensus of the 21 analysts covering the stock is split 11 Buy, 7 Hold and 1 Sell, with a median target near $274 and a mean in the low $250s. Our range sits inside that band rather than outside it, which is where we prefer to be. If the only way to justify a position is a target above every professional forecast on the tape, that is usually a signal to stop.

At 17 times forward earnings you are paid for growth you are not being asked to forecast. The valuation does the work; the thesis only has to avoid being wrong.

Risks and What Would Change Our Mind

A research note that only argues one side is marketing. These risks are specific, and several of them are serious.

The GLP-1 bear case may simply be slow rather than wrong. This is the risk that matters most. Two and three-year resupply data cannot tell us what happens to a patient a decade into sustained weight loss. If a meaningful cohort eventually resolves their apnoea and discontinues therapy, the annuity that underpins the margin structure degrades — and it would degrade quietly, showing up first as a deceleration in mask and resupply growth rather than as a single bad quarter. That line is the one to watch, and it is the line we would exit on.

Philips could take share faster, or cheaper, than expected. A share glide from 55-60% toward 49-52% is the consensus assumption. A more aggressive re-entry — particularly one fought on price into the home medical equipment channel — would compress both the volume and the gross margin assumptions in our model simultaneously. Gross margin at 60% instead of 63% removes a material portion of the earnings base.

Reimbursement and channel concentration. ResMed does not sell to patients. It sells to distributors who are themselves reimbursed by public and private payers under compliance rules that can change by administrative decision. A tightening of adherence requirements, a competitive bidding reset, or pressure on resupply frequency would flow directly into revenue without any change in underlying disease prevalence.

The de-rating may be information, not noise. We should be intellectually honest about this. A market that holds a stock down for six consecutive months is sometimes seeing something the reported numbers have not yet expressed. Our position is that the observable evidence contradicts the fear; it is not that the market is stupid. Investors buying here are explicitly taking the other side of a well-articulated, widely held view, and should size the position accordingly.

Currency and single-condition concentration. Reported growth of 11% was 8% in constant currency; a stronger dollar removes roughly three points of headline growth. And after the MatrixCare sale, ResMed becomes a more concentrated bet on a single therapeutic area than it has been in a decade. That focus is strategically coherent and financially riskier at the same time — there is no second engine if sleep slows.

Catalysts and What We Are Watching

• Fourth-quarter results on 6 August 2026. ResMed reports after the New York close. The full-year figures matter less than the first commentary on fiscal 2027, which will be the first formal guidance issued into the GLP-1 debate.

• Mask and resupply growth. The single cleanest read on whether the installed base is holding. Sustained mid-teens growth invalidates the bear case quarter by quarter; a slide toward device-level growth is the early warning.

• New patient starts and diagnosis volumes. If GLP-1s are a demand generator rather than a substitute, it shows up here first, in home sleep testing volumes and therapy initiations.

• Completion of the MatrixCare sale and the size of the buyback. Expected in the first quarter of fiscal 2027. The scale of the accelerated repurchase will tell us how management reads its own valuation.

• Philips share disclosures. Quarterly commentary from both companies, and independent channel data, will show whether the share transition is orderly or price-driven.

• Longer-horizon GLP-1 outcome studies. Independent, non-company-sponsored data covering five years or more of sustained weight loss is the evidence that will eventually settle this debate in either direction.

The Bottom Line

ResMed is a market-leading medical device manufacturer with mid-thirties operating margins, a recurring consumables annuity, close to a billion dollars of net cash, and $1.75 billion of annual free cash flow, trading at roughly 17 times forward earnings because the market has decided that a class of weight-loss drugs will eventually dismantle its end market. The company's own 1.7 million-patient dataset says the opposite is happening so far. Nine months into the fiscal year, revenue is up 10%, gross margin is up 290 basis points, and earnings per share are up 21%.

None of that proves the bears wrong over a fifteen-year horizon, and we are not claiming it does. What it establishes is a gap between a stock priced for structural decline and a business that is currently accelerating — and a valuation that requires no heroic assumptions to close a meaningful part of it. The fear is about a future nobody can yet measure. The cash flow is happening now.

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This article is for educational purposes only and does not constitute financial advice. The Financial View may hold positions in the securities discussed.