It wasn't Rudi who said every fund manager in Sydney was buying...

It wasn't Rudi who said every fund manager in Sydney was buying but the point remains valid. I believe it was Phil King from Regal Funds who said every fund manager in Australia is buying. It was a line from an article of Live.w.ire / Market Index

I think this highlights part of what is happening here.



I don't know where to find any more recent data than this, but I suspect the shares are being sold short in the US by night (our time), and the 10:1 CDIs are then following downwards by day on the ASX. It's turned out to be a nice, profitable little trade for some. As usual, selling begets more selling and before we know it, a stock is completely out-of-favour. Nobody wants to touch it. Why would you?! Every time you buy it just drops lower! Only a complete fool would buy today when tomorrow it will be cheaper. I've been buying.

I am in the debt of @bugts1 for the video he posted a link to. I suspect it's been over-looked and recommend anyone to watch it on YouTube, then give him some credit on his original post (18/9/2023). I watched it twice. This British doctor really nails it. In a nutshell, he suspects that in a significant number of cases, sleep apnoea causes weight gain, rather than the other way around. It's an interesting perspective I hadn't heard before. Thank you, sir. Bugts1's video is here:

This means our machines will continue to be used by a lot of people -- whether obese or not. I guess it also means there is a vulnerability to a wonder drug which quickly and easily cures the condition, rather than simply address the symptoms (as our machines do).

The market is really pricing Resmed for a grim future as a consumer defensive stock a la Bega, Ansell or Amcor. I suspect even Coles and Telstra are trading on higher P/E multiples with lower forecasted growth than Resmed at the moment. This is the blessing and the curse of being US listed where you end up with both extremes of the spectrum of exuberance vs pessimism. My theory is that if RMD were only listed on the ASX we'd be at $29 or $30, not hurtling towards $20.

This "the company failed to meet consensus targets" nonsense means nothing to me either. Perhaps the trouble isn't Resmed's performance, but the predictions of the analysts. Sometimes I think the analysts live in an ideal, Barbie-type reality whereas in the real world, growth is not a smooth, predictable linear trajectory. Some quarters or years are better than others for dozens of different reasons. Analysts make these artificial projections based on their own assumptions, then sell the company when it misses their target by X percent. It's either a good company with solid long-term prospects or it isn't. A quarter, a half or even a year where things do not go according to Wall Street analysts' plans is irrelevant.

As I've written before, I previously bought a modest amount of shares at $25 in 2021 and sold last year at $40. Resmed was on a PE multiple of about 60 at $40 and it seemed stretched. However, I was lucky with the timing. I bought a modest parcel at $24.50 a fortnight ago and have been nibbling away with with small parcels over the past couple of weeks. At $20.28 (I think that's the price mentioned earlier today in an earlier post...) I would buy a decent-sized parcel and double my holding. Who knows if that eventuates. However it will be sentiment, not fundamentals that drive the share price in the short term. I'm not an accountant and do not have a finance degree. I have no idea how to crunch the numbers and properly value Resmed. All I know is this:

[Earnings Per Share growth + forecasted growth (light blue)]






Book Value is growing year-after-year. So too is Shareholders' Equity. New shares are (generally speaking) not being issued each year to dilute my holding. Dividends are growing each year (although the yield is pretty pathetic!). It's a beautiful set of numbers and graphs from an industry leader, in a price insensitive field, a huge and under-serviced market, with a well-deserved name for quality and reliability.

Every broker I look at either has a Strong Buy or Moderate Buy recommendation. I am happy to take comfort from brokers and analysts when their recommendations align with own pre-conceived views. At all other times I hold them with contempt (joke. Sort of!)

The massive sell-off has seen our PE ratio contract to about 23 times -- and that will shrink further as our earnings grow and/or the share price falls further. Resmed could just about tread water and grow with CPI at 3-4% per annum from here and justify its current valuation. Anything close to our historic growth would surely justify a re-rating and a much higher share price. I suppose the risk is these wonder-drugs. At the current price I feel I am being compensated for the risk. I expect that as the next couple of quarters come and go, and the sky hasn't fallen in, the market will start to realise Resmed has been severely misjudged. As our share price rebounds, those short-sellers will need to cover their positions. I expect the rebound will be as dramatic as our fall, and a few experts will be left to explain why on earth Resmed was selling on a PE multiple in the low 20s.

Of course, I could be wrong.

I remember working in an office in 1995 and being very happy with the computer system we had. The manager said that in a couple of weeks' time, the I.T. guys would be installing something over the weekend called "Windows 95" and that it would allow us to have multiple windows open at a time. I though it sounded ridiculous. I remember thinking, "Who would want to be running multiple programs when they only have one screen to look at? What a waste of time, energy and money installing such a system when what we currently have works fine." Yeah... So perhaps I am totally wrong and am under-estimating the threat Resmed is facing by the new drugs. If that's the case, I still feel confident of getting my $24 a share back when sentiment changes. Resmed is the industry leader. However, if it's a case of sell now, ask questions later, with a couple of years' EPS growth and PE expansion back to historic multiples, I will be looking for a repeat of my previous 'buy at $25 and sell at $40' medium term trade; but with quite a few more shares to my name this time.

Even I could see that my Nokia 5110 was totally inferior to the new touch screen phones. Why wouldn't you just take a pill and throw away the machine?! It is a possibility. However I have read the transcript of the presentation and Q&A session posted here last week. Resmed management see the drugs as an opportunity rather than a threat. I am going to back their judgement.

Please do not take any of what I have written as advice or a recommendation to do anything. It's simply my interpretation of the current situation.