ResMed: A Long-Term Owner's Perspective

Inference: This is a hybrid business of "one-time device sales + recurring mask consumables/accessories + software subscription/maintenance." Its earnings quality is higher than that of a pure hardware seller: once a patient enters the PAP treatment pathway, masks, headgear, tubing, and the like carry ongoing replacement demand; once an institution migrates its workflows to Brightree, MatrixCare, or MEDIFOX DAN, software revenue is usually more predictable than device revenue. The company does not disclose a complete renewal rate or net revenue retention, so the precise strength of software stickiness cannot be fully quantified, but the contract deferred revenue and renewal-risk disclosures at least confirm that a recurring revenue component genuinely exists.

Fact: ResMed states explicitly that its products are sold in more than 140 countries, reaching the market through its own sales force and distribution network; it also discloses that "no single customer accounts for more than 10% of total revenue." This means the business does not depend on any one very large customer.

Inference: The "barrier to understanding" this business is not high: at its essence, it treats a very common, long-standing, and under-penetrated chronic disease, then uses a data platform and software to improve efficacy, adherence, and institutional efficiency. The truly complex parts lie in regulation, reimbursement, channel relationships, and data compliance, not in the product principles themselves. If the stock market closed for five years, I would be willing to hold this business; but my precondition is a reasonable purchase price, because even a good business can have its returns destroyed by a high valuation.

Business understandability score: 4.5/5. The products, customers, and pricing methods are all relatively clear; the complexity comes mainly from the payment system and compliance, not from the business model itself.

Industry stage, demand stability, and competitive landscape

Fact: In its 10-K, ResMed cites research stating that among the global population aged 30-69, roughly 936 million people have mild-to-severe OSA and roughly 424 million have moderate-to-severe OSA; the company also emphasizes that markets such as sleep-disordered breathing and COPD remain "globally under-penetrated." CPAP is the first-line treatment for OSA and must be used long-term, typically every night.

Inference: This is neither a declining industry nor a purely cyclical one; it is more like a medical-device niche that is still growing but is shaped by diagnostic penetration, payment policy, and clinical pathways. Long-term demand has clear resilience: aging populations, obesity, diabetes, cardiovascular comorbidities, and the shift toward home care all support demand; short-term swings come mainly from diagnostic flow, channel inventory, reimbursement policy, competitive events, and new therapies.

Fact: ResMed discloses that its products face ongoing competition, where the basis for competition includes speed of innovation, product performance, regulatory clearance, supply capability, pricing, and alternatives such as drugs. In December 2024, the FDA approved Zepbound for treating moderate-to-severe OSA in patients with comorbid obesity, the first approved drug therapy for OSA; meanwhile, Philips Respironics' CPAP/BiPAP/ventilator recall, ongoing since 2021, and its 2024 federal consent decree have also significantly reshaped the competitive landscape in recent years.

Inference: ResMed's main competition does not come only from "another company that sells CPAP." I would break competition into three layers: The first layer is traditional PAP/mask/respiratory device competition, where Philips has historically been one of the most important rivals; The second layer is alternative-therapy competition, such as Inspire's implantable neurostimulation, oral appliances, and weight loss including weight-loss drugs; The third layer is competition over the entry point of diagnosis and care workflows, where whoever can move patients from screening to treatment faster and more smoothly has a better chance of capturing the patient's lifetime value. ResMed's acquisition of VirtuOx, its earlier acquisition of Somnoware, and a series of residential care software platforms are, in essence, extensions into this third layer of competition.

Fact: By FY2025, ResMed had a patient base of more than 30 million using AirView cloud-connected devices, more than 10 million registered myAir patients, and residential care software covering more than 160 million patient accounts. The company also says it can conduct research and optimize products based on millions of real-world, de-identified clinical data points.

Inference: By industry position, ResMed looks very much like "a good company in a good industry." The industry itself is not perfect: reimbursement and regulation constrain pricing power, and drug therapies are reshaping part of the patient pathway; but ResMed's position is better than most peers, because it not only sells devices but is also accumulating patient data, physician relationships, channel relationships, and software workflows. My industry attractiveness score is 4 / 5.

Moat and Management

How strong is the moat, really

Brand advantage: present. ResMed has operated in PAP and masks for a long time; the company calls AirSense 10 "the most widely used CPAP/APAP series," and AirSense 11 continues to strengthen connectivity and digital features. In medical devices, the brand is not a "Coca-Cola-style" powerhouse, but to physicians, HME providers, and patients, the brand is reliability, comfort, algorithms, and after-sales experience.

Switching costs: medium-high. Once a patient enters the PAP pathway, the device, mask, app, prescription tracking, and adherence management form an ongoing habit; once an institutional customer migrates billing, EMR, workflows, and compliance to Brightree / MatrixCare / MEDIFOX DAN, switching costs are usually not low. The company also explicitly discloses that software contracts depend on renewals, showing it recognizes renewal as a key operating variable.

Scale and channel advantage: fairly strong. ResMed covers more than 140 countries, reaching hospitals, sleep centers, HMEs, and residential care facilities through distribution and direct sales, with no dependence on a single large customer; this gives it economies of scale in supply, clinical education, channel coverage, and compliance execution.

Data advantage: fairly strong, and possibly widening. More than 30 million cloud-connected patients, 10 million registered myAir users, and 160 million software-platform patient accounts mean it holds data not just on device sales volume but on treatment adherence, patient pathways, institutional efficiency, and settlement workflows. This is not a classic "network effect," but it clearly strengthens product iteration, algorithm optimization, physician tools, and institutional workflow integration.

Licenses, patents, regulatory barriers: present, but not the single deciding factor. The company discloses that it owns or licenses roughly 10,000 patents and designs worldwide, and that products sold in the U.S. are mainly cleared through 510(k); entering the U.S. and European markets requires meeting FDA, QSR, and CE marking requirements. These barriers are real, but I do not believe "patents themselves" are the most core moat; what is truly hard to replicate is the combination of "device + mask + cloud platform + institutional software + channel."

Cost advantage: some, but not the primary moat. Gross margin has improved substantially over the past two years, which management attributes mainly to manufacturing, procurement, and logistics efficiency, plus reduced 2024 safety-notification expenses; this shows ResMed has operational improvement capability, but it is not yet enough to prove an overwhelming lowest-cost advantage.

Network effect: weak. Having more patients does not automatically make the platform "irreplaceable" for each incremental patient; it is more of a "data flywheel" than a traditional network effect.

Pricing power: present, but not fully free. I would define ResMed's pricing power as "medium." On one hand, product differentiation, brand, and service capability give it the ability to sustain prices and upgrade the product mix; on the other hand, reimbursement, competitive bidding, price controls, and distribution rebate arrangements clearly constrain its room to raise prices. The company itself discloses price controls in several countries, and the U.S. DMEPOS competitive bidding program may also restart.

Conclusion: ResMed's moat does not come from a single dimension, but from the combination of "clinical necessity + long-term patient use + recurring mask consumables + channel relationships + data flywheel + embedded institutional software." I judge this moat to be stable to slightly widening, but the biggest variable is whether drug therapies and changes to the diagnostic workflow weaken PAP's status as the first choice among new patients. Moat strength score: 4/5.

Is management trustworthy, and is capital allocation rational

Fact: Michael Farrell has served as CEO since 2013 and added the chairman role in 2023; the board has an independent Lead Director, and aside from Michael Farrell and founder Peter Farrell, the remaining directors are deemed independent. The company has executive stock-ownership requirements: the CEO must hold stock worth at least 6 times annual salary, and other named executives at least 3 times annual salary; as of September 23, 2025, Michael Farrell held about 611,640 shares, and all current directors and executives held about 950,000 shares combined, roughly 0.65% of shares outstanding.

Inference: Management and shareholders do have some alignment of interest, but it is not the extreme model of "very high founding-team ownership." Michael Farrell's operating track record is deep and his industry experience strong, which is a point in his favor; but "CEO also serving as chairman" plus "two-generation father-son influence over management and board" also means the governance structure is not flawless. The independent Lead Director softens this issue but cannot be said to eliminate it entirely.

Fact: ResMed's compensation system emphasizes "pay-for-performance." In FY2025, about 91% of the CEO's total direct compensation was at-risk; annual cash incentives are anchored mainly on adjusted net revenue and adjusted operating profit, and long-term incentives mainly on absolute TSR and relative TSR.

Inference: This incentive design has two strengths: it values profit, and the long-term equity incentive weighting is high; but it also has one clear weakness: it does not directly anchor on ROIC, intrinsic value per share, or Owner Earnings. This means that if the company grows scale through M&A, or buys back heavily when the valuation is not cheap, the incentive system itself may not automatically penalize such behavior. For a value investor, this is worth keeping in mind.

Fact: Over the past several years the company has mainly used cash for R&D, marketing, capital expenditure, acquisitions, dividends, buybacks, and debt repayment. In FY2023, ResMed acquired MEDIFOX DAN for $997.5 million; in FY2024 it continued with the Somnoware acquisition; in 2025 it acquired VirtuOx. Meanwhile, the company repurchased $150 million in FY2024, $300 million in FY2025, and $500 million in the first three quarters of FY2026, while continuing to pay dividends.

Inference: Capital allocation is overall acceptable, but not impeccable. I endorse the M&A direction toward software and the diagnostic entry point, because it clearly strengthens end-to-end capability; software-segment operating profit also rose from $116 million in FY2023 to $205 million in FY2025, showing the acquisitions at least did not clearly destroy the business. The issue lies with buybacks: based on a rough estimate from disclosed treasury-stock changes and buyback amounts, the average buyback cost was about $181 per share in FY2024, about $238 per share in FY2025, and about $263 per share in the first three quarters of FY2026; meanwhile, net shares outstanding fell from 147.06 million at the end of June 2023 to 145.04 million at the end of March 2026, an actual reduction that is not large. This looks more like "steady buybacks" than "buying back heavily when significantly undervalued."

Fact: Management does not shy away from problems in its risk disclosures. The company openly discusses the impact of drugs on the OSA pathway, uncertain reimbursement/bidding policy, VirtuOx's Medicare supplier compliance responsibilities, and VirtuOx's pre-existing 2022 civil and CIA burdens.

Management and capital allocation score: 3.5/5. The operating level deserves respect, and a long-term orientation broadly exists; but the governance structure, buyback timing, and the fact that incentive metrics are not directly tied to ROIC/per-share value are the core reasons I stay cautious.

Financial Quality

How exactly did the financials improve over the past few years

The table below is compiled from ResMed's FY2020, FY2022, FY2024, and FY2025 audited statements plus the fiscal Q3 2026 10-Q. TTM is an approximate estimate of FY2025 + 2026Q3 - 2025Q3; free cash flow uses the conservative definition of operating cash flow - capital expenditure - patent registration costs; ROE and ROA are approximated on beginning-end average values, and ROIC, given differences from "excess cash, low-tax-rate years, and acquired-asset definitions," is addressed separately after the table.

Fact: From 2020 to 2025, revenue rose from $2.957 billion to $5.146 billion, a 5-year compound growth rate of about 11.7%; net income rose from $622 million to $1.401 billion, a 5-year compound growth rate of about 17.6%; free cash flow rose from about $696 million to about $1.651 billion. On a trailing-twelve-month basis, ResMed has entered a higher earnings tier.

Inference: This looks much like the financial profile common to excellent medical-device companies: revenue grows steadily, margins expand after supply-chain and scale improvements, and cash flow recovers to match or even exceed profit. Worth noting, the 2021 net margin was notably low, mainly due to the ATO tax dispute; free cash flow in 2022 and 2023 was again weak owing to inventory, working-capital, and acquisition disruptions, so no single year can be mechanically treated as a "standard year." Looking through these disruptions, the company's central earnings power has in fact kept strengthening.

Cash flow, balance sheet, and working capital

Fact: As of March 31, 2026, the company held cash and cash equivalents of $1.661 billion and total debt of $664 million, a clear net-cash position; available revolving credit capacity still stood at $1.5 billion. In FY2025, net interest had already turned into net interest income of $4.114 million, and net interest income in the first three quarters of FY2026 rose further to $29.029 million.

Inference: Estimating with approximate trailing-twelve-month EBITDA, ResMed's net debt/EBITDA is negative, and gross debt/EBITDA is only about 0.3x. A balance sheet like this is a very important cushion against "permanent loss of capital." Even if the economic environment worsens, regulation changes, or M&A integration hits a snag, the company is unlikely to be dragged down by leverage.

Fact: From the end of June 2025 to the end of March 2026, accounts receivable rose from $939 million to $999 million, inventory fell from $928 million to $912 million, and accounts payable fell from $278 million to $273 million; within operating cash flow for the first three quarters of FY2026, accounts receivable consumed $59.57 million and prepaid and other current assets consumed $152 million, while inventory released $23.95 million and accounts payable and other liabilities contributed $122 million.

Inference: Working capital shows none of the classic danger signs of "profit up, cash poor, receivables and inventory ballooning." On the contrary, after the 2022-2023 supply-demand mismatch, inventory is now relatively stable, and accounts-receivable growth broadly matches revenue growth. The only thing to keep watching is the relatively fast rise in prepayments and other current assets, line items that always warrant investor vigilance.

Fact: Capital expenditure is not heavy. PPE capital expenditure for FY2023-FY2025 was $120 million, $99 million, and $90 million respectively, and patent registration costs were $14.33 million, $15.40 million, and $10.78 million respectively; relative to operating cash flow over the same period, the proportion is low.

Inference: ResMed's growth does not require huge physical capital investment. It is more of a "strong R&D + medium sales investment + light-to-moderate capital expenditure" model. As such, it belongs to the category of businesses that generate more cash the more they grow, rather than businesses that "run short of cash the more they grow."

Is the profit real

Fact: FY2025 net income was $1.401 billion and operating cash flow $1.752 billion; in the first three quarters of FY2026, net income was $1.140 billion and operating cash flow $1.351 billion. The company has also continued in recent years to disclose effective internal controls, with both the 2024 and 2025 annual reports audited by KPMG.

Inference: By results, ResMed's profit is closer to "real cash profit" than to accounting profit propped up by receivables, inventory, or expense capitalization. I see no clear signs of financial fraud or aggressive accounting; but one cannot be complacent either, because acquisition accounting, intangible amortization, tax definitions, and stock-based compensation all create gaps between GAAP and true Owner Earnings. For a company like this, the audit opinion is only a "baseline check"; what truly matters is whether you can keep watching cash flow, buyback efficiency, and M&A returns over the long term.

Owner Earnings

How I estimate ResMed's true distributable cash flow

Method note: I do not directly treat GAAP net income as "money the owner can take out." The more conservative approach starts from operating cash flow and deducts the capital expenditure needed to sustain operations; because patent registration costs are a long-term, recurring real cash outflow for ResMed, I deduct them as well. This yields a conservatively biased approximation of Owner Earnings.

Fact: On a trailing-twelve-month basis, ResMed's operating cash flow is about $1.890 billion; after deducting PPE capital expenditure of about $136 million and patent registration costs of about $16 million, conservative Owner Earnings is about $1.738 billion. Based on about 145.0 million shares outstanding at the end of March 2026, that corresponds to conservative Owner Earnings of about $11.98 per share. At the current price of $206.10, that is about 17.2 times Owner Earnings.

Inference: This estimate carries two implications. First, ResMed does not currently need to raise leverage, cut R&D, or extremely compress capital expenditure to "manufacture cash flow"; it is itself a machine that genuinely spits out cash. Second, the market is not selling it to you cheaply as an "ordinary medical-device stock," but pricing it on the logic of "high-quality, defensive, sustainable compounding." A multiple of around 17 times Owner Earnings is by no means a bubble, but it is hardly clearly cheap either.

Judgment on the relationship between net income and free cash flow: Over the long term, free cash flow is broadly higher than or close to net income; short-term disruptions come mainly from working capital, inventory, and M&A-related timing differences. 2022-2023 were clearly weaker years, and the recovery since 2024 has been strong. For a long-term owner, this matters more than looking at any single quarter's EPS.

Valuation and Margin of Safety

Owner-earnings discounted valuation

The valuations below are inferences, not facts. The key assumed variables include: starting Owner Earnings, the compound growth rate over the next 10 years, the discount rate, the terminal growth rate, and whether net cash should be treated as a distributable asset. To stay conservative, I use Owner Earnings per share of about $11.3-12.0 as the starting point.

Inference: Under this set of assumptions, the values I arrive at are a conservative intrinsic value range of $165-185, a fair intrinsic value range of $210-235, and an optimistic intrinsic value range of $270-300. The latest price of $206.10 sits roughly between "above conservative value" and "near the lower end of fair value": a slight discount to the low end of the neutral range, but still a premium to the conservative range. So the current price can hardly be called amply protected by a margin of safety.

Relative valuation and asset value

Fact: Roughly calculated from the latest price and financial data as of March 31, 2026, ResMed currently trades at about 19.9x PE, 17.3x P/FCF, 13.7x EV/EBITDA, and 4.6x P/B. There is no perfectly comparable listed company in its competitive set: Philips was a historically important device rival, but its business is too diversified and weighed down by the recall; Inspire is an OSA alternative-therapy player, but is far smaller with a different technology path. By real-time market data, Philips has a market cap of about $24.87 billion and Inspire about $1.21 billion; Inspire's current PE is about 9.6x, but its business model and risk exposure are not equivalent to ResMed's.

Inference: The conclusion relative valuation gives me is not "ResMed is cheap," but "ResMed deserves to be more expensive than the average device stock." The reason is that it has net cash, strong cash flow, high ROE/ROA, fairly defensive operations, and software and data capabilities that raise its quality. Even so, the current valuation still leans "fair-to-slightly-rich," not "significantly undervalued." If peers are all expensive, that cannot prove ResMed is cheap; in value investing, comparison can only assist, never replace, absolute valuation.

Fact: As of the end of March 2026, the company's shareholders' equity was $6.492 billion, of which goodwill was $3.043 billion and other intangibles $425 million; cash was $1.661 billion, receivables $999 million, inventory $912 million, and total debt $664 million.

Inference: From an asset-based view, ResMed is not an asset-type opportunity but an earnings-power opportunity. Roughly deducting goodwill and intangibles, current tangible net assets sit at around $3 billion, or about $20-21 per share. This shows that once you buy ResMed, what you are really buying is the Owner Earnings it will keep producing over the next 10 years, not the liquidatable assets on today's books. This is also why I insist that the margin of safety be built on "cash-flow value" rather than "book value."

Margin-of-safety judgment

My conclusion is clear: the margin of safety is insufficient. If you are a quality investor willing to hold for the long term, the current price is not unbuyable; but if you are a balanced-conservative value investor who emphasizes "buying cheap," the current price does not give me strong conviction. The most fragile valuation assumption is that Owner Earnings can still compound at a medium pace of around 6% over the next 10 years, while drugs, payment, and competition do not significantly narrow the PAP new-patient funnel. If that assumption breaks, the valuation can easily shift from "fair" to "rich."

Ideal buy price range: $170-190. This is the range I consider more consistent with the requirements of a "balanced-conservative" investor, because it sits closer to the overlap zone of conservative value and fair value. Acceptable holding price range: $190-235. If you already hold, I would not casually sell just because the price is in this range. Clearly overvalued range: above $260. At this zone, you are essentially pre-paying for the optimistic scenario.

Risks, Comparisons, and Final Conclusion

The most important risks and the strongest counterargument

Competitive risk: The Philips recall handed ResMed a phase of dividends, but this kind of "rival-mishap dividend" is not a permanent moat; as supply recovers or alternative therapies advance, the share-gain dividend may give back.

Technology-substitution risk: GLP-1 weight-loss drugs have already gained an OSA indication, which will change the treatment pathway for some obesity-related OSA patients; for ResMed, the biggest risk is not necessarily that "existing patients immediately stop using PAP," but that "new patients do not start on PAP at all."

Regulatory and payment risk: ResMed depends fairly heavily on third-party payers, and both U.S. DMEPOS bidding and overseas price controls could compress channel margins and device prices.

M&A and compliance risk: VirtuOx brings ResMed closer to the diagnostic entry point, but it also exposes the company directly to heavier compliance frameworks such as Medicare billing, False Claims, HIPAA, and CIA. VirtuOx historically had 2022 civil and CIA matters, and this business is not a "fully worry-free" asset before 2027.

Capital-allocation risk: The company has stepped up buybacks over the past two years, but the buyback prices are not low, and the reduction in net share count is limited. If management keeps buying back at "fair or even somewhat rich" prices, long-term per-share value growth may not be optimal.

Valuation risk: The typical risk ResMed faces today is not that "the business is bad," but that it is a "good company at a price that is not cheap enough." Once growth slips from 6%-8% to 3%-4%, or the market compresses its valuation from 20x PE back to a more ordinary 15x-16x, returns over the next several years could easily fall below the index.

Strongest counterargument: If I were on the short side, I would put it this way: ResMed's high growth and high margins over the past few years partly benefited from the supply-demand imbalance after the Philips recall; and now, drugs have rewritten the "entry point" of OSA treatment, and payers' tolerance for high-priced devices and consumables will not rise without limit. The software business is good, but it is only about 12% of revenue, not yet enough to fundamentally rewrite the company's essence. If device new-patient growth slows, mask-replacement growth normalizes, and software growth is not enough to take the baton, then today's 17x+ Owner Earnings multiple is not cheap. I consider this counterargument not weak.

Which facts would overturn my judgment: If the following appear over the next 4-6 quarters, I will acknowledge a wrong call and reassess: device revenue at persistently low single digits or even negative growth; clear stall in masks and other high-replacement businesses; software growth dropping to low-to-mid single digits with deteriorating renewal quality; gross/operating margins declining for consecutive periods on non-one-time factors; more serious compliance penalties at VirtuOx; management continuing to buy back heavily at high valuations.

Comparison with other opportunities

Versus the strongest competitor: If I look only at "direct understandability, balance sheet, and cash-flow quality," I would rather hold ResMed than Philips, which is dragged down by the recall and more diversified, and ResMed is also more solid than Inspire, whose business model is narrower and path more singular. But this does not automatically mean ResMed is the best investment at the current price.

Versus a broad-market index: Buying ResMed at the current price, I expect annualized returns over the next 10 years to land roughly in the ranges of conservative 4%-6%, neutral 7%-9%, optimistic 10%-12%. This neutral return is not high enough to make me very confident it clearly beats simply buying the index, especially under your premise of "balanced-conservative." In other words, ResMed's business quality is very likely above the index average, but the current valuation may not give you a large enough excess-return cushion.

Versus risk-free or high-grade bonds: If you buy ResMed, it is to capture the equity return of "long-term corporate growth + owner-earnings expansion," not for stable coupons. If you lack sufficient confidence in GLP-1, payment policy, or valuation compression, then buying higher-certainty fixed-income assets now may be no worse than buying ResMed immediately.

If you could only hold 5 assets, does it qualify: At a better price, I think it qualifies to compete for a spot on a 5-asset core list; but at the current price, I lean toward placing it on a high-quality watch list rather than immediately giving it a core position.

Investment checklist

The "pass / fail / uncertain" entries below are opinions, based on the facts and inferences above.

Final investment conclusion

【Final rating】 Watch

【One-sentence investment thesis】 ResMed is a high-quality, cash-generative, net-cash leader in sleep and respiratory health, but the current price looks more like "a good company near fair value" than "a good price with a clear margin of safety."

【Core bull case】

• OSA and home respiratory care demand is structurally durable, and the treatment pathway has chronic-disease characteristics.

• The company holds a combined moat across devices, masks, the cloud platform, and residential care software, and has built a large-scale real-world data advantage.

• Gross margin, operating margin, operating cash flow, and free cash flow have improved markedly over the past two years.

• The balance sheet is very strong, in a net-cash position at the end of 2026Q3, with high risk resistance.

• Expansion into software and the diagnostic entry point raises its ability to capture patient lifetime value.

【Core bear case】

• GLP-1 drugs have already entered the OSA treatment pathway and may compress the future new-patient funnel.

• Payers, tenders, and overseas price controls constrain its ability to "raise prices at will."

• The large buybacks over the past two years did not clearly occur in a "significantly undervalued" range.

• VirtuOx introduces new compliance and billing risk.

• The current valuation does not offer a balanced-conservative investor a wide enough margin of safety.

【Key assumptions】

• PAP remains one of the core treatment pathways for OSA over the next 10 years, rather than being heavily marginalized by drugs or other therapies.

• The software business sustains mid-to-high single-digit growth, with no deterioration in renewals or product-embedding depth.

• Operating margins do not fall sharply on price competition and reimbursement.

• Management keeps maintaining net cash/low leverage and prudent M&A.

【Fair buy price】 $170-190. The basis is that it sits closer to the intersection of conservative value and fair value, and better meets the margin-of-safety requirement of "balanced-conservative."

【Target holding horizon】 10 years or more. This stock suits holding under business-ownership logic rather than trading on quarterly swings.

【Expected annualized return】

• Conservative scenario: 4%-6%

• Neutral scenario: 7%-9%

• Optimistic scenario: 10%-12% These return assumptions already embed continued business quality, but do not assume the market keeps awarding a higher valuation multiple.

【Maximum loss risk】 Under the simultaneous occurrence of "slowing new-patient growth + declining earnings power + valuation-multiple compression," a permanent capital loss of 40%-60% is not impossible. One imaginable extreme scenario: the market re-rates it from a high-quality compounder back to an ordinary device stock, while results are weakened by drug and reimbursement pressure.

【Tracking metrics】

• Sleep and Breathing Health revenue growth

• Masks and other revenue growth

• Residential Care Software growth

• Gross margin and operating margin

• Operating cash flow / free cash flow / FCF conversion

• Period-end cash, total debt, net cash

• Buyback amount, average buyback price, and net share-count change

• Signs of GLP-1 impact on diagnosis and treatment initiation

• CMS/DMEPOS bidding and reimbursement changes across countries

• VirtuOx compliance, audit, and collection status

【Signals that trigger reassessment】

• Device or mask revenue significantly below industry demand for several consecutive quarters

• Gross margin declining consecutively with management unable to explain it via one-time factors

• Clear deterioration in software renewals/retention

• Additional major regulatory or reimbursement penalties at VirtuOx

• Management continuing to buy back heavily at high valuations

• Debt rising rapidly again, with a clearly more aggressive M&A pace

【Final recommendation】 If you see yourself as a 10-year business owner, ResMed is worth tracking long-term, even worth placing near the front of a high-quality candidate pool; but if you are also a conservative value investor who emphasizes margin of safety, then the better move right now is not to "rush to own it" but to "patiently wait for a better price." My calm conclusion: a good company, at an acceptable price, but not yet enough for me to give a firm buy today.

Open questions and limitations

Areas needing additional information:

• The public renewal rate, net revenue retention, and customer churn of the residential care software business, which the company does not currently disclose in full.

• Maintenance capital expenditure cannot be precisely separated from public statements, so the Owner Earnings estimate uses a conservatively biased total-capex definition.

• In peer relative valuation, there is no fully matching listed company replicating ResMed's "device + mask + data platform + residential care software" combination, so peer comparison can only serve as a supplement and should not override absolute valuation.

This report is based on public information and does not constitute investment advice. Markets carry risk; invest with caution.