ResMed Shares Popped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of ResMed (NYS: RMD) , a provider of medical products that treat respiratory disorders and sleep-disordered breathing, are no snooze today, shooting up 13% at one point following better-than-expected second-quarter earnings results.

So what: It was actually a fairly mixed quarter for ResMed, but shareholders seem pleased given that the company was able to surpass Wall Street's expectation of a $0.38 profit and deliver $0.42 in earnings to shareholders. On the other hand, sales actually fell short of consensus figures of $339.6 million, coming in at $332.7 million. Gross margin also contracted by 110 basis points during the quarter to 59.7%.

Now what: That last bit of info is what has me disturbed. Expenses rose by 11.7% during the quarter and the company is actually forecasting margins will range from 58% to 60% in 2012 -- so if anything, they have a better chance of shrinking from this most recent quarter. At 17 times forward earnings, ResMed appears fairly valued and unless it can significantly reduce expenses or grow its margin, I see plenty of other more enticing opportunities in the medical products sector.

Craving more input? Start by adding ResMed to your free and personalized watchlist so you can keep track of the latest news with the company.

At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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