RMD remains a global leader in sleep and respiratory care, offering CPAP devices, masks, and digital health software that treat sleep apnoea and chronic respiratory disorders. The company continues to deliver consistent growth, supported by rising global diagnosis rates and an expanding base of high-margin, recurring revenue from its cloud-connected platforms. Financially, RMD’s performance remains strong, with FY25 revenue of $US5.15 billion, up +9.8% year-on-year, and gross margins holding around 57%. With the stock now trading on 23.8x FY26 earnings and down more than 13% from its late-August high, there are early signs that value may be starting to re-emerge in this high-quality name.
RMD’s valuation currently sits nearly one standard deviation below its five-year average, despite GLP-related risks to sales growth failing to materialise and robust momentum in its Devices segment. Consensus forecasts have constant-currency sales growth of 8.4% for FY26. Should adoption of sleep-apnoea solutions continue its strong trajectory, the company is well positioned to sustain high-single-digit sales growth, a level that typically warrants a valuation premium.
The company’s multiple compressed alongside peers in late 2023 amid speculation over the rise of GLP-1 weight-loss drugs and their potential to replace sleep-apnea treatments. RMD has recovered from its low of 18x in October 2023 as concerns eased, but it’s still well below the usual 30x it has traded over time.
If RMD can maintain its streak of double-digit growth in FY26, the stock appears relatively inexpensive around $39. Concerns regarding GLP‑1 drugs have largely abated, though some discount seems justified following last summer’s clinical data showing positive effects on sleep-apnoea patients—results that reverberated across the medtech sector and contributed to RMD’s valuation plunging lower in just a few months. Importantly, the company’s fundamentals remain robust: strong sales growth has translated into higher profits, more than offsetting any GLP-related headwinds.
- The million-dollar question with RMD is what’s its fair valuation with weight loss drugs, not just here to stay, but also to gain greater adoption.
Firstly, this remains an impressive world-class business, but after recovering strongly from Ozempic worries in 2023/4, we must focus on what comes next. We believe there remains ongoing uncertainty around the impact of weight loss drugs over the longer term, and another “wave” of news-driven selling wouldn’t surprise although it’s likely to find support quicker than in 2023. This is not a perfect science, but RMD feels fair value around $40 and wouldn’t be compelling to us unless it continued to decline towards its 2025 lows.
The key risks for RMD, outside of Ozempic et al, include intensifying competition now that Philips Respironics has returned to the market after resolving its product recall, plus intensifying competition in sleep-apnoea devices from low-cost Asian manufacturers who are focusing on the emerging markets. For example, in the Asia-Pacific CPAP devices market, China alone held around 36% of revenues in 2024, illustrating that lower-cost manufacturers are gaining traction. However, RMD’s recurring software revenue and strong balance sheet help mitigate some of these headwinds. We saw yesterday with CSL plunging lower that profit growth in the 4-7% range commands a 16x valuation, RMD should clearly be higher, but we don’t think it’s attractive enough yet on close to 24x with uncertainties still around.
- We continue to believe RMD is a world-class business, but its valuation isn’t compelling enough around the $39 area.
MM would get interested in RMD ~$35
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