Why ResMed Stock Is Soaring

Shares of ResMed (NYSE: RMD) had soared 16.2% higher as of 11:50 a.m. ET on Friday. The big jump came after the healthcare technology company reported results on Thursday evening for its fiscal 2024 third quarter, which ended March 31.

For the quarter, ResMed reported revenue of $1.2 billion, up 7% year over year, and earnings per share of $2.04, based on generally accepted accounting principles (GAAP). The company also reported non-GAAP (adjusted) earnings per share of $2.13, handily beating the consensus Wall Street estimate of $1.91.

Behind ResMed's soaring profits

The most important driver of ResMed's profit growth was strong demand for the company's medical devices and software -- particularly its sleep devices. The company also reported double-digit percentage revenue growth for its mask products and accessories. Software-as-a-service revenue rose by 8% year over year.

ResMed's improving margins also contributed to the increased profitability. The company's gross margins rose by 260 basis points on a GAAP and non-GAAP basis. Management attributed those improvements mainly to reduced freight and manufacturing costs.

Is ResMed stock a buy?

Worries that the growing use of weight-loss drugs Wegovy and Zepbound would lead to a reduction in the size of the market for ResMed's sleep devices appear to have been overblown. ResMed CEO Michael Farrel said on the quarterly earnings call that patients taking these GLP-1 agonists are actually 10.5% more likely to start positive airway pressure (PAP) therapy than those who aren't taking those drugs.

After ResMed's great fiscal Q3 results, is its stock a buy? I think is an OK pick. However, in my view, many other stocks offer even better growth prospects.

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