Ann: ResMed Announces Results for the First Quarter of FY2024, page-49

I suspect part of the problem is the quarterly reporting. When things are going your way it's a blessing. When they're not, it's a curse.

Imagine if companies reported weekly?! The stock price is up or down this week because the company has had a slow week. Anyone who has ran a business knows company progress and performance is not a neat, smooth linear trajectory. Good staff come and go. Competitors emerge. Marketing campaigns fail or succeed. There are good months and bad months. Revenue doesn't increase by the same, neat, predictable amount each month. You have the right processes and products in place, and get more things right than wrong. It works itself out. The analysts seem to think one quarter at a time, and stress about comparisons to previous quarters. A step backwards needs to be taken sometimes to see the bigger picture.

Anyone who trains for marathons, 21k races, etc. has bought a sports watch. However it's the Garmin app (or Strava, or whatever platform you like) which makes the difference. You're not just buying a physical Garmin watch. The software, with its graphs and historical data, connected to the cloud, is what you really want. The data from your run has picked up your home WiFi signal and uploaded itself to the cloud before you've even opened your front door or taken your Nikes off. No intervention on your part is necessary.

Our SAAS numbers are growing well. That's high margin and a real add-on to the machines and masks. We're not just selling advanced vacuum cleaners. And once you're locked into that ecosystem, there's little chance you'll change. Very sticky. Before you know it, you're buying extra (leather) wristbands to wear your Garmin to office instead of the default silicone band. I see the Resmed product in a similar way. I love how the masks are replaceable items.

Analysts have a point about margins and the weight loss pills -- which are now supposed to potentially also address kidney issues as well. It seems there's nothing they can't cure! However, with a PE ratio near 20, I see little medium term risk. I bought Resmed in 2021 for $25 and sold for $40 on a PE of around 60 in 2022. If the PE ratio were at similar levels today (in the 50s, and a share price in the mid-high $30s) with weight loss pill uncertainty, my tune here would be completely different. In my opinion though, all the downside risks were priced in a month or two ago. Now Mr. Market has decided to price them in again a second time for good measure.

If EPS growth continues over the next two or three years at historic levels -- or even at a slower pace with a weaker outlook -- we'll have a medium term PE ratio in the mid-teens. That's ridiculous for a high quality healthcare stock. Buybacks and higher dividends would surely commence. We'd be taken over.

In my mind, the cheaper this stock gets, the lower the risk I'm taking by buying more. The market is pricing this like we're going to become a stranded asset in the next 3-5 years. We're not the thermal coal industry for goodness sake. And even that thesis is very highly debatable!

Could be famous last words on my part!