3 Reasons Not to Sleep on ResMed Stock

ResMed reported Q2 FY2026 revenue growth of +11% YoY (quarter ended Dec 31, 2025) with operating income up 18% and rising gross margins, reflecting continued demand. Market value is roughly $38B; the stock has averaged +15.6% annually over 15 years but slowed to +6.5% over three years; forward P/E is ~22 versus a five-year average of 29, suggesting a cheaper valuation. Management is increasing R&D and digital-health investments (myAir ~9M users, company cites impacting ~144M lives) while flagging risks from uncertain Medicare reimbursement and potential alternative treatments.

Analysis

ResMed's most underappreciated asset is its data flywheel: clinical adherence signals, mask fit telemetry, and longitudinal sleep metrics that can convert one-time device sales into sticky, high-margin recurring revenue if management executes on SaaS pricing and outcomes-linked contracts. Even modest migration of revenue mix (e.g., +5ppt digital revenue/year) would plausibly drive 150–300bps of incremental EBITDA margin over 2–3 years, because software gross margins are 3–4x hardware margins and service ops scale faster than device manufacturing.

Competitive dynamics favor scale: incumbency in installed base and global service footprint raise switching costs for patients and payors, while regulatory/regional recalls constrain Philips’ ability to reassert share quickly — creating a 12–24 month window for ResMed to entrench digital relationships. A second-order beneficiary is cloud/AI infrastructure (GPU/cloud credits, model deployment) — as care shifts to continuous remote monitoring, vendors like NVDA that provide scalable inference and training capacity capture a non-linear uplift in sell-through to healthcare customers.

Key downside catalysts are discrete and time-bound: payer reimbursement changes and positive outcomes data from alternatives (implantable stimulators or new pharma) could compress volumes within 12–36 months and re-rate multiples rapidly. Near-term triggers to watch are product approval/launch cadence, digital monetization KPIs (ARPU, churn, percent of patients on subscription), and any CMS policy signals; absent durable ARPU expansion, valuation is exposed to multiple compression.

The consensus is optimistic on valuation without stress-testing monetization assumptions: the market prices digital revenue as near-certain when conversion needs measurable clinical-economic ROI to unlock payor-wide contracts. Conversely, the oft-overlooked upside is cross-selling into COPD, hospital-at-home and post-acute monitoring where even low-single-digit share gains can move organic growth materially over 24 months.

Key Decisions for Investors

• Core long RMD (6–12 month horizon): Build position on weakness (scale into a 5–10% pullback). Hedge tail risk by buying a 6–9 month RMD put (2–4% OTM) sized to cap drawdown to ~15–18%. Target 20–30% upside if digital ARPU and subscription penetration accelerate; downside ~30% in a reimbursement shock scenario.
• Pairs trade (6–12 months): Long RMD / Short PHG equal notional — thesis: RMD monetizes installed base faster while PHG faces regulatory/recall/regulatory hurdles. Set stop-loss at 8–10% adverse move; target relative outperformance of 12–25% if RMD digital KPIs roll forward positively.
• Tactical AI exposure (3–12 months): Buy NVDA 6–12 month call spread ~25–30% OTM (buy lower strike, sell higher strike) to capture incremental cloud GPU demand from healthcare ML deployments. Limited-cost exposure with asymmetric upside if healthcare AI workloads scale; expect 2–4x return if adoption accelerates, loss limited to premium paid.
• Protective short-tail hedge on RMD (3–9 months): Buy a cheap RMD put spread (e.g., 8–15% OTM) to protect against a sudden reimbursement or regulatory shock. Cost should be <2% of portfolio notional and serves as low-cost crash insurance while maintaining long exposure.