ResMed (ASX:RMD) share price returned 20% in 1 year. Where to in 2021?

Medical devices company ResMed Inc (ASX: RMD) had a successful year in 2020, with operating profit growing by more than 24%. As a result, the Resmed share price returned more than 20% for the investor. This, in a year dominated by the coronavirus pandemic.

Can the company improve on this share price performance in 2021? Let’s take a look at the opportunities and challenges ahead for ResMed this year.

First, the numbers…

For the full year of FY20, the company’s operating profit grew 24% to US$890.9 million.

ResMed then followed this up with a strong first-quarter FY21, with first-quarter revenues increasing by 10% against the prior comparative period to US$751.9 million, while net operating profit surged 27%.

A key driver of this growth was its Europe and Asia markets, which delivered a 22% increase in revenue during the quarter.

Management advised that the sales were driven by its device product portfolio, including an increased demand for ventilators due to COVID-19.

Big opportunity for its devices

ResMed is one of only two leading players in the global obstructive sleep apnea market (OSA). Its biggest competitor is the Dutch multinational, Philips.

These two companies combined make up an estimated 80% of the US$5 billion market. 

Analysts believe the OSA market is only 20%-30% penetrated, out of a total addressable market that includes 24 million people with moderate to severe sleep apnea, and 30 million with mild cases.

ResMed has carved a nice niche in this space, and its brand, along with Philips, is well recognised.

In addition to OSA devices, ResMed also stands to benefit from the trends in respiratory health, which was exacerbated by the COVID-19 pandemic. In 2020 alone, the company sold more than $US40 million worth of pandemic-related ventilator units.

The company will also benefit from the increasing trend towards out-of-hospital healthcare, and at-home digital health monitoring.

Competition

As mentioned, ResMed is facing strong competition from its key rival, Philips.

The devices sold by both companies have similar functionality, and command substantial price premiums over less well-known brands.

For example, ResMed’s OSA devices are priced around 13% higher compared to those made by Fisher & Paykel Corp Ltd (ASX: FPH), one of the smaller players in the OSA market.

Growth by acquisitions

Resmed is attempting to grow fast by acquiring smaller players. 

In 2016, it acquired Brightree for US$800 million, which gave it access to Brightree’s clinical software applications for the post-acute care industry.

This was followed by the acquisition of MatrixCare in 2019 for US$750 million, which has enhanced ResMed’s ability to offer out-of-hospital software to patients and healthcare providers.

Where’s the ResMed share price heading in 2021

As mentioned, the ResMed share price lifted more than 20% in 2020.

Where the share price will go to in 2021 will largely depend on whether ResMed is able to fend off competition from its rival Philips, and continually come up with new devices ahead of the competition.

At the time of writing, the ResMed share price is trading lower by almost 2% at $27.09. It commands a market cap of $9.9 billion.

More reading

• Which ASX 200 healthcare shares delivered the top returns in 2020?
• 2 ASX growth shares to buy in January
• 4 of the best ASX shares to buy in 2021
• 3 top ASX share picks for 2021 from NZ brokers
• Buy these ASX blue chip shares in 2021

Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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