Friday, February 5, 2010

Have you heard of this company? RMD



















There are always plenty of events for investors to focus on that can easily distract them from the start of the day until its end -- big issues of politics, global events, market reversals, and fears about the next crisis (whatever that will be).

However, a constant theme of our blog has and always will be that investing is really about matching up capital with solid businesses, and we believe that investors should be focused on finding good companies even in the midst of uncertain environments (as we have noted before, the 1970s serve as an excellent historical example of the importance of this concept).

To illustrate this, and to point out that even in the midst of general angst about the economy and about potential political events good companies are continuing to grow their business and make money for their shareholders, we'd like to call attention to a business we've owned for our clients since 2003, a specialized medical device company called ResMed.*

We believe that ResMed is an ideal example of a Taylor Frigon growth company. The company provides continuous positive airway pressure (CPAP) devices such as masks and respirators, which are used in the treatment of obstructive sleep apnea and other sleep breathing disorders.

Awareness of sleep breathing disorders is on the rise among both patients and physicians, as well as understanding of the other health problems that can be related to these issues -- including extremely serious health problems such as heart disease, diabetes, and strokes. Because they take place during sleep, when we are unconscious, awareness of sleep problems has been very limited in the past. In fact, research shows that up to 80% of those with sleep problems are unaware of the fact.

In many ways, the incredible importance of sleep in health is only now becoming widely appreciated. Harvard Medical School has created a website dealing with the subject of healthy sleep here, which gives some indication of the depth of this issue.

Because this issue is so important but so underappreciated, it represents a potential paradigm shift. As awareness has grown among physicians and the general public, the perceived value of products that can promote healthy sleep has grown. ResMed, which was founded by a pioneer in CPAP research, has been an important provider of sleep treatments during this time.

Not only is the market expanding due to the increasing awareness of the issue itself, but ResMed as a business is taking market share. There has been an increased understanding of the importance of using high-quality CPAP devices -- patients tend to stop using lower-quality devices, which doesn't do them any good and in fact does them harm (in addition to wasting their money). ResMed is a maker of high-end masks and devices.

Recently, ResMed announced quarterly revenue growth of 23% over the year-ago quarter, and earnings growth of 36% over the year-ago quarter, beating analysts' estimates in both numbers. The company is one of the only publicly-traded businesses focused solely on their particular market.

We believe that focusing on the fundamentals of well-run businesses in front of fertile fields of growth is important for investors, all the more important during periods in which worry and distractions are widespread. Doing so may also help them to sleep better at night.

* The principals of Taylor Frigon Capital Management own securities issued by ResMed (RMD).

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For later posts dealing with this same subject, see also:


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