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Is ResMed (RMD) Stock Still Below Fair Value On Cash Flow?

Simply Wall St · 2d ago

ResMed has delivered a strong 56.5% gain over the past three years, even though shorter term returns have been weaker, which puts the spotlight squarely on whether the current US$221.15 share price lines up with the cash the business is expected to generate. For anyone looking at the stock today, the key issue is how that market value compares with an intrinsic value estimate built from its cash flows.

  • Over 3 years the stock is up 56.5%, which means long term holders now have much more of their wealth tied to whether ResMed's future cash flows can support that higher equity value.
  • The business model depends on converting sleep and respiratory care demand into recurring cash inflows, so assumptions about how reliably those cash streams arrive may have a big influence on any intrinsic value calculation.
  • Prefer to judge ResMed on earnings? See what ResMed's 20.8x P/E says about the price.

The issue now is whether the cash flow profile implied by a Discounted Cash Flow (DCF) view can justify where ResMed is trading today.

If you are considering whether ResMed's recent 3 year gain is supported by its cash flows, it may be helpful to compare that same question across 28 high quality undervalued stocks.

Is ResMed a Bargain on Cash Flow?

The Discounted Cash Flow (DCF) approach here works off ResMed's ability to turn its installed base and new devices into future surplus cash for shareholders. Over the last twelve months the group generated about $1.66b in free cash flow, which gives the model a substantial cash engine to project forward rather than a thin or highly volatile starting point.

Analysts then extend that cash figure with a growing profile, climbing into the low $2b range by 2030 before easing into more moderate assumed increases after that first stage. When those future streams are pulled back to today and compared with the current US$221.15 share price, the DCF framework indicates ResMed's estimated intrinsic value is substantially above where the stock trades. Find out what ResMed could be worth using our Discounted Cash Flow (DCF) estimate.

The ResMed Narrative: What Would Justify Today's Price?

ResMed investors looking beyond the DCF output can use Simply Wall St Narratives as the link between that valuation puzzle and the specific future that would need to unfold for the stock to be worth materially more or less than today. Where a single ratio or model gives one figure, these narratives spell out the growth, margin and earnings path that number relies on so you can track over time whether reality keeps matching the story, all housed on Simply Wall St's Community page.

Community views on ResMed split between those who see the connected care story as underappreciated and those who think device and margin risks are underpriced.

Bull case: 11% undervalued

"Growth in ResMed’s connected device and digital health ecosystem, including AirSense 11, AirView, myAir and the GenAI coach Dawn, is improving therapy adherence and resupply behavior while easing customer service load..."

Discover why this Narrative puts ResMed at 11% undervalued.

Bear case: 26% overvalued

"GLP-1 therapies are being framed internally as a once-in-a-generation demand opportunity, however, if broader weight loss adoption or new clinical data leads to fewer patients requiring CPAP, growth in device and mask revenue could fall short of current expectations..."

Explore why this Narrative puts ResMed at 26% overvalued.

One more thing about ResMed that could change how you see it

Cash flows and scenarios only tell part of the story for ResMed, because the people setting priorities, allocating capital and setting their own pay packets can tilt outcomes in ways the model never captures. See who runs ResMed and how they are paid.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.