productive,
I'm not sure where your 25% figure comes from. At yesterday's close of $8.25, the stock is 15% down from its $9.80 all-time high reached in mid-April.
And I think that in situations like these, some context is always useful: it bears remembering that even if the stock falls by the extra 15% that it will drop today, it will still leave it at a level where it started the year.
And - for further context - that level will still be almost 40% higher than where it started calendar 2014 which in turn, was some 30% higher than where it started calendar 2013, and the 2013 starting price, in turn, was more than 60% higher than the same time in 2012.
Of course, it would be naïve to overlook that Resmed is a US$ denominated security, and some of the outperformance of the share price in recent years would have
No matter.
The question from is what the stock price will do now.
Short-term, (say, one week or one month): I have no real idea. I can’t begin to guess what shorters might seek to do, nor how holders of the stock will respond given this latest development.
But if you held a gun to my head and said, “You have to guess!”, then I’d say the stock will continue to go down.
The reason I say that is because there are not likely to be any net buyers emerging given the stock’s valuation has gone from considerably expensive (26x P/E before today) to just a little bit expensive (at 21x P/E today).
For net buyers to emerge in meaningful size, would require a multiple closer to 18x P/E, which represents a ~15% premium to the overall market’s multiple. This has, historically, been the sort of relative valuation from which outperformance of the market by the stock has occurred.
18x P/E corresponds to a price of ~$6.00/share.
So, if you are looking to buy the stock with a view it selling it in a few days/weeks/months’ time, I don’t think you are going to meet with much joy, sadly.
But don’t hold me to account on that; it’s only a “gun-to-the-head” induced guess.
But I am not really in the business of jagging absolute troughs and peaks of share prices, so my analysis is admittedly very broad-brushed and conclusions draw from it should be treated accordingly.
Instead, I am more a buyer of businesses whose business models are capable of causing growth – with little risk - in intrinsic value over time.
And long-term, well, needless to say, I am an unwavering believer in the wealth creating capabilities of this particular business, via ongoing increases in its intrinsic value over time.
My basis for this is best summarised by a post made some two years ago by another poster:
"This is a company whose market value has, over the past two decades almost, risen by an average rate in excess of 25%pa. This has been supported by compound annual growth rates for Revenue, EBITDA and NPAT of 20%pa, 22%pa, and 25%pa, respectively.
EPS has never gone backwards in any given year. And, importantly, it has achieved this phenomenal growth without reverting to shareholders for a single dollar of funding.
On the contrary, RMD has over the past decade returned over $1.0bn of capital back to shareholders via dividends ($300m) and share buybacks ($1.4bn in total share buybacks netted off against $680m worth of incentivisation stock issued to staff and management over the past 15 years).
Interesting fact: RMD today has almost $600m in net cash on the balance sheet. That was the entire market cap of the company a little more than ten years ago! Plus, as an owner of the business, you would have received double that amount in capital returns!
Ten years ago, RMD was earning around $35m of NPAT on revenues of around $200m. This year, the company will earn about 10 times that level of NPAT, and Revenue will be over eight-fold higher! I
defy anyone who can find a company who can match this sort of wealth creation for shareholders.
I think the next decade looks at least equally promising given some of the structural and technological changes underway in the Sleep Disorder market, on which RMD - as industry leader - is sure to capitalise.”
[I note that since that post was made some two years ago, there have been some significant regulatory pressures brought to bear, and the business environment has remained fiercely competitive… yet Resmed has continued to grow EPS by 19% (and that’s in constant US$ currency terms).]
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