If you can’t sleep, this is One Stock You Need to Know About!
With 70 million potential sleep deprived customers, this company is poised to explode during the next 12 months.
By Jay Peroni, CFP®
Many toss and turn each night. Restless. They can’t sleep. Or maybe they snore or wake up constantly. This may be you or someone you know…
Those who snore might have a common sleeping disorder called sleep apnea, also known as Obstructive Sleep Apnea (OSA). This means their upper airway temporarily closes while they sleep, causing them to stop breathing. These periods when breathing stops last for at least ten seconds and may happen up to several hundred times a night.
This puts a strain on the body, raising blood pressure and reducing the quality of sleep. These repeated apneas reduce oxygen levels, and this alerts the brain to wake the body to begin breathing again.
Many fail to remember this happening, but as a result, often feel tired the following day. They may be aware they had a restless night or woke up in the middle of the night for no apparent reason. Chances are these sleeping problems are impacting their health and productivity.
Sleep consumes about one-third of our lives, yet many suffer from sleep disorders. Statistics show about 70 million people in the United States have a sleep problem, of which 40 million of these are diagnosed as chronic problems. It is estimated that sleep deprivation accounts for an annual $18 billion in lost productivity.
The cumulative effects from the loss of sleep can be attributed to health consequences, such as an increased risk of hypertension, diabetes, obesity, depression, heart attack, and stroke.
But there is a company working to solve this crisis. It remains a key leader of sleep apnea treatment. With its admirable innovative capabilities, it focuses on developing medical devices to treat sleep apnea and educating caregivers about therapy options. The firm’s product portfolio consists of airflow generators, nasal masks, and pillows that introduce the airflow needed to prop open respiratory pathways during sleep. These tools help patients breathe easier and avoid complications associated with sleep apnea, including exhaustion and hypertension.
There are three major trends that should provide a pathway for explosive growth:
1. There is a large, underserved market of individuals with breathing/ sleep-disorders. This healthcare company incorporates noninvasive treatments into sleeping patterns.
2. Major innovations have taken place to bring awareness that’s driving more patients to discuss options with physicians..
3. At-home sleep apnea testing could explode at any time, opening up new markets for those who do not want to dedicate the time and money required for testing in a sleep lab. This trend will greatly benefit the products of this leading treatment provider.
ResMed (NYSE: RMD) is a leading developer, manufacturer and distributor of medical equipment for treating, diagnosing, and managing sleep-disordered breathing (SDB) and other respiratory disorders. The company is dedicated to developing innovative products to improve the lives of those who suffer from these conditions and to increasing awareness among patients and healthcare professionals of the potentially serious health consequences of untreated sleep-disordered breathing.
ResMed’s reach is truly global, with distribution capabilities in more than 70 countries through wholly owned and independent firms. Most of its manufacturing capacity remains in Australia, where it was founded. ResMed generates about half of its sales in the United States, while the other half is dispersed primarily throughout Europe, Japan, and Australia.
SDB affects around 20% of the adult population, making it as widespread as diabetes or asthma. But awareness is low and up to 90% of people who have obstructive sleep apnea (OSA) remain undiagnosed and untreated. Along with an increased understanding of the morbidity and mortality caused by SDB, this discrepancy has created one of the fastest growing segments in the respiratory industry. ResMed is positioned to meet the growing challenges of this under-penetrated market.
ResMed has focused on public education and awareness as it relates to the serious health consequences of SDB. By working with the public and physicians, it can increase its potential customer base and work toward making a difference in the lives of those who suffer from sleep apnea.
Looking at demographic trends, ResMed should be in high demand during the next decade with the aging population and rate of obesity. This should lead to an increased patient pool. I think 10% compound annual sales growth is conservative as awareness increases and more convenient testing options become available growth could advance much further.
ResMed invests about 7% of revenues in research and product development. They hold more than 3,000 patents granted or pending worldwide, proving its focus and ability to develop new sleep apnea treatments. Combine this with a large undiagnosed potential patient pool and ResMed looks positioned to grow at a substantial rate during the next five years.
They also look strong from a financial perspective. It has more than $470 million in net cash after debt is considered as of the end of the first-quarter. It produces more than $322 million of free cash flow while paying a 1.8% annualized dividend.
Risks to Consider: ResMed is limited by the willingness of third parties to pay for sleep treatment. If ResMed receives lower reimbursement rates for its products it could impair revenue and margin potential. Additionally, about 7% of ResMed’s profits are allocated toward research and development. If it is unable to introduce new products in the future, sales and margins could also suffer.
Action to Consider: Buy ResMed (NYSE: RMD) up to $40 a share. This company has tremendous upside potential with sleep deprived patients and investors alike. It has produced annual gains in excess of 20% annualized for the past 15 years and I can see this stock hitting $50 a share by the end of 2013. It also has a current dividend yield of 1.8%.
Disclaimer: Investing involves risk. Always do your own due diligence and consult a trusted financial professional before making any investing or financial decisions. Jay Peroni is a Certified Financial Planner and is part of our Christian Financial Advisor Network
About the Author
Jay Peroni, CFP (Certified Financial Planner, Money Manager)
Jay Peroni is a Certified Financial Planner and investment advisor with 16 years of money management experience. He is a public speaker, and is the author of The Faith-Based Millionaire. He is a leading authority on the subject of Faith-Based Investing. He is a frequent contributing writer to FTMDaily.com and provides regular market commentary for the FTMWeekly Radio program. In addition, Jay manages Jerry Robinson’s own P.A.C.E. Investment Portfolio. If you have a stock investing question, contact Jay at (888) 664-6963 or by email at firstname.lastname@example.org.