Index changes put ResMed in focus

ResMed (RMD) has dropped from several Russell growth indices, including the Russell 1000 Growth and Russell 3000 Growth benchmarks. This change is putting fresh attention on how index adjustments could influence interest in the stock.

ResMed's index reclassification comes after a mixed price pattern, with the share price down 15.9% year to date. This comes despite a 6.6% 30 day share price return and a 1 year total shareholder return that declined 18.8%, suggesting momentum has been fading overall.

If you are weighing how this shift in focus on healthcare technology might affect your portfolio, it could be a useful moment to scan other healthcare focused AI opportunities using the 40 healthcare AI stocks.

Bulls point to ResMed’s respiratory focus, profitability and implied discount to some intrinsic estimates, while bears highlight recent index exits, underperformance and insider selling. Which case does the current valuation lean toward?

Most Popular Narrative: 21% Undervalued

Based on the most followed narrative, ResMed's fair value sits at $260.60 compared with a last close of $205.84. This frames the stock as materially undervalued and puts the focus on what assumptions underpin that gap.

Acceleration in adoption of home-based, cloud-connected therapy solutions and digital health platforms (including software like Brightree and AirView) enhances recurring high-margin revenue streams and increases both user retention and net profit margins over time. Ongoing innovation in product development, including new releases of CPAP devices, mask interfaces, and integration of AI-driven features, strengthens ResMed's competitive differentiation and supports premium pricing power, driving both revenue and margin expansion.

Curious what sits behind that valuation gap for ResMed? The narrative leans on steady revenue expansion, firm margins and a richer earnings multiple years from now. The key details are in how cash generation, profitability and capital returns are expected to evolve and how that all gets discounted back to today.

Result: Fair Value of $260.60 (UNDERVALUED)

However, the ResMed narrative could be knocked off course if GLP 1 therapies reduce device demand faster than expected, or if Philips' U.S. return pressures pricing and market share.

Next Steps

This mix of optimism and caution around ResMed ultimately comes down to your own comfort with the key assumptions and risks. To pressure test that view quickly and see what others are optimistic about, take a closer look at the 4 key rewards

Looking for more ideas beyond ResMed?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.