Why is ResMed stock soaring today?

stock ResMed (RMD 16.11%) As of 11:50 a.m. Friday, it was up 16.2%. The big jump came after the medical technology company reported results for its third quarter of fiscal 2024, which ended March 31, on Thursday evening.

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

Behind ResMed’s surging profits

The most important driver of ResMed’s profit growth has been strong demand for the company’s medical devices and software, particularly its sleep devices. The company also reported double-digit sales growth for its mask products and accessories. Software-as-a-Service (SaaS) revenue increased 8% year over year.

ResMed’s margin improvement also contributed to increased profitability. The company’s gross margin increased 260 basis points on a GAAP and non-GAAP basis. Management attributed these improvements primarily to lower freight and manufacturing costs.

Is ResMed stock a buy?

Concerns that Resmed’s sleep device market will shrink due to increased use of weight loss drugs Wegovy and Zepbound appear to be exaggerated. ResMed CEO Michael Farrel said in his quarterly earnings call that patients taking these GLP-1 agonists are actually 10.5% more likely to initiate positive airway pressure (PAP) treatment than patients not taking the drugs.

Could you buy ResMed’s stock after its strong fiscal third quarter? I think it’s a decent choice. But it seems to me that many other stocks offer much better growth prospects.