ResMed stock lags S&P 500 despite 8.9% revenue growth

ResMed (NYSE:RMD) shares have underperformed the broader market over the past six months, posting a 2.7% decline while the S&P 500 index gained 15.9%. The stock currently trades at $218.94 per share, a level that reflects recent weakness despite the company's long-term operational track record. For investors holding or considering the position, this divergence highlights a tension between the company's historical execution and its immediate outlook.

The company, which was founded in 1989 to address sleep apnea, develops cloud-connected medical devices and software for treating respiratory disorders in home and clinical settings. To understand the underlying health of the business, it is necessary to look past reported revenue and examine constant currency revenue. This metric strips out currency movements, which are external factors outside of ResMed's control, to reveal true demand trends. Over the last two years, ResMed's constant currency revenue has averaged an 8.9% year-on-year growth rate. This steady expansion suggests the company can maintain global growth irrespective of macroeconomic conditions.

Financial efficiency has also improved significantly. Over the last five years, ResMed's margins expanded by 23.1 percentage points. The business has become less capital-intensive, evidenced by free cash flow profitability rising faster than operating profitability. For the trailing 12 months, the free cash flow margin stood at 29.2%. These figures indicate a maturing business model that generates substantial cash relative to its revenue base.

However, forward-looking estimates present a different picture. Sell-side analysts project ResMed's revenue to rise by just 2.7% over the next 12 months. This represents a sharp deceleration compared to the company's 12.1% annualized growth rate achieved over the past five years. This slowdown in projected growth signals potential demand headwinds for its products and services, which could pressure valuation multiples despite the strong historical performance.

The gap between past growth rates and future analyst forecasts is the central factor for holders to weigh. The recent underperformance against the S&P 500 suggests the market is already pricing in some of these concerns regarding slowing momentum.