Would Warren Buffett Buy ResMed (RMD) at a 26× P/E?
ResMed, a global leader in sleep apnea and respiratory care, has quietly become one of the highest-quality compounders in the S&P 500. With rising margins, exceptional returns on capital, low debt, and a valuation near decade-lows, this analysis explores whether Warren Buffett would consider buying RMD today.
Would Warren Buffett Buy ResMed at a 26× P/E?
Moat & Leadership — Strong but Not Perfect (Score: 3.5/5)
ResMed has a durable, highly defensible moat built on decades of clinical trust, strong physician relationships, and a massive installed base of CPAP devices supported by a sticky cloud software ecosystem. Patients, providers, and insurers rely on ResMed’s end-to-end platform, giving the company meaningful switching costs and recurring revenue advantages. Its brand is dominant in sleep apnea therapy globally, and its supply chain scale, regulatory approvals, and proprietary algorithms reinforce competitive barriers. The leadership team has consistently executed through supply constraints, regulatory cycles, and competitive challenges — all while expanding margins and returns on capital.
Verdict: A resilient, moderately wide moat — not as impenetrable as Adobe or Meta, but firmly in Buffett territory due to scale, switching costs, and long-term patient lock-in.
Fundamentals — Excellent (Score: 4.5/5)
ResMed’s fundamentals are some of the best in the entire healthcare sector. Over the past 5 years, revenue grew around 11–12% annually, and EPS compounded near 18–22%. Even more important: the past 10 quarters show clear acceleration, with margins and earnings rising far faster than revenue. Balance sheet strength is elite: debt-to-equity is just 0.07, net margin stands at 27%, cash flow per share is $11.14, and the current ratio is 2.89 — all indicators of exceptional financial resilience.
Verdict: Outstanding fundamentals with tremendous financial resilience and excellent long-term visibility.
Earnings & Margins — Outstanding & Improving (Score: 4.5/5)
ResMed’s last 10 quarters tell a clear story of strengthening economics: gross margin expanded from 55% to 61.5%; operating margin jumped from 25.5% to 34.6%; EPS growth frequently exceeded 20–40%; and ROE and ROIC now sit at 24% and 21%, respectively. This rare combination of rising margins, consistent growth, and high capital efficiency makes ResMed a textbook compounding engine.
Verdict: A structurally improving earnings powerhouse — the exact type of business Buffett admires.
Valuation & Margin of Safety — Surprisingly Attractive (Score: 4.5/5)
Despite strengthening fundamentals, ResMed trades at just 26× trailing earnings and 23.5× forward earnings — well below its 10-year median P/E of 38. This means the stock is trading roughly 31% below its long-term valuation range, even as margins, ROIC, and earnings accelerate. Based on historical mean reversion, fair value lies between $290 and $320, implying ~30–45% upside from current levels.
Verdict: A rare valuation disconnect for a business with expanding profitability and high returns on capital — a classic Buffett-style margin-of-safety opportunity.
Risks, Competition & Disruption — Manageable but Real (Score: 4.0/5)
ResMed faces two persistent risk narratives: GLP-1 weight loss drugs potentially reducing the prevalence of sleep apnea, and competitive pressure from Philips and Fisher & Paykel. However, clinical data so far is mixed, and physician switching costs remain high. Regulatory, reimbursement, and competitive risks are consistent in healthcare, but ResMed’s scale, long-term clinical trust, and established ecosystem provide meaningful insulation.
Verdict: Risks are credible but manageable for a company with this level of operational strength and balance-sheet safety.
Buffett’s Lens — Would He Buy?
ResMed meets nearly every major Buffett filter. Its low debt, high returns on capital, predictable earnings, and recession-resistant demand would all appeal to Berkshire’s investment philosophy.
| Buffett Criteria | ResMed’s Status |
|---|---|
| Durable Moat | ✅ Strong, improving |
| Consistent Earnings Power | ✅ Very consistent |
| High ROE / ROIC | ✅ Exceptional |
| Minimal Debt | ✅ Outstanding |
| Capable, Long-Term Management | ✅ Proven |
| Attractive Valuation | ✅ Yes — historically cheap |
Conclusion — Buffett Would Likely Be Interested (Overall Score: 18.0/20)
ResMed offers a compelling mix of quality, consistency, and value. It ranks #4 in the S&P 500 on a quality basis, tied with Adobe and just behind Meta and Nvidia. Despite this elite profile, the stock trades at a valuation far below its historical norms — creating a margin of safety rarely seen for a company of this caliber.
- Moat & Leadership — 3.5 / 5.0
- Fundamentals — 4.5 / 5.0
- Earnings & Margins — 4.5 / 5.0
- Valuation & Margin of Safety — 4.5 / 5.0
- Total — 18.0 / 20 (Buffett-grade compounder at an attractive price)
In Buffett’s own framing, ResMed appears to be a ‘wonderful business at a fair (or even discounted) price.’ Its long-term economics remain robust, sentiment is overly fearful, and the margin-of-safety window is still open — though likely not for long.
More details about RMD's moat, fundamentals, and valuation:
RMD Stock Analysis
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