Why the ResMed share price could crash lower again on Tuesday

James Mickleboro | January 29, 2019 |More on: RMD

On Friday the ResMed Inc.(ASX: RMD) share price was one of the worst performers on the ASX 200 with a decline of 12%.

Unfortunately for its shareholders, the sleep treatment-focused medical device company’s shares look set to extend this decline when the market reopens on Tuesday.

This is because ResMed’s ASX listed shares are actually chess depositary instruments that trade on the local market and represent a tenth interest in its primary NYSE listing.

Since the release of its quarterly results on Friday, ResMed’s US listed shares have fallen just over 22% and are now changing hands at US$91.16.

This means that ResMed’s shares are worth approximately US$9.12 each, which at the current exchange rate works out to be $12.73.

So with the locally listed ResMed share price finishing the week at $14.47, this could mean another decline in the region of 12% on Tuesday.

It will also mean that ResMed’s return over the last 12 months has been wiped out, leaving its shares roughly flat over the period.

Is this a buying opportunity?

If ResMed’s shares were to fall a further 12% today, I think investors ought to consider this as an opportunity to buy the shares of one of Australia’s highest quality companies at a fair price.

Especially given its long track record of generating solid sales and earnings growth and its positive long-term growth prospects.

One broker that still sees a lot to like about ResMed is Goldman Sachs.

The softer than expected second quarter result was largely driven by lower sales in its Rest of the World segment. The broker notes that its core U.S. business continues to perform well, driven by further market share gains in mask categories.

In addition to this, due to its SaaS business and the current freeze on competitive bidding headwinds, it still sees scope for gross margin expansion through FY 2021.

According to the note, the broker currently has a neutral rating and $15.20 price target on ResMed’s shares, but I suspect this will quickly shift to a buy rating if ResMed’s shares do drop below $13.00 today.