Healthcare winners and wallflowers: ResMed shines as select medical and biogen stumble

By early 2026, ResMed showcased robust operational and financial performance, surpassing revenue and earnings expectations largely due to strong sales in masks and accessories and strategic expansion of its AirSense 11 platform into new markets. Complementing this growth, the company’s digital initiatives to boost sleep apnea awareness and diagnosis have further fueled market development, demonstrating a proactive approach to overcoming broader industry headwinds.

Despite facing persistent challenges such as rising component costs and complex market dynamics across Europe, Asia, and the US, ResMed’s focus on supply chain and logistics improvements has been pivotal in driving margin expansion and enhancing capital efficiency. Analysts emphasize that sustaining this operational discipline will be critical as the company prepares to leverage upcoming catalysts like the adoption of Noctrix’s NIDRA device and further AirSense 11 rollout to maintain its growth trajectory.

Meanwhile, Stryker’s long-term operational fundamentals remain strong, with a consistent 9.2% organic revenue growth and 12.2% annual EPS growth over the past five years, underscoring its resilience amid sector headwinds. Although the company recently experienced a 10.6% dip, these solid growth metrics position Stryker well for a comeback, reflecting its ability to navigate market uncertainties while maintaining financial discipline.

Select Medical exemplifies the profitability and financial risks plaguing some healthcare stocks, with earnings per share declining 14.1% annually over five years despite flat revenue, highlighting operational inefficiencies amid market saturation and declining admissions. Compounding these challenges is its hefty $2.97 billion debt load and a net-debt-to-EBITDA ratio of 6×, which severely restrict borrowing flexibility and dampen the stock's upside potential despite a seemingly reasonable forward P/E of 12.7×.

Biogen and Tandem Diabetes Care illustrate how revenue growth or stability does not guarantee profitability; Biogen's revenue shrank 4.6% annually over five years with earnings falling even faster, signaling diminishing returns on capital, while Tandem Diabetes suffered a 19.1% annual EPS decline despite revenue gains, reflecting value destruction from recent management investments. These trends underscore a broader sector issue where high growth efforts often translate into negative returns on capital, eroding shareholder value.

Healthcare providers like Universal Health Services face operational headwinds that limit their capacity to invest or reward shareholders, as evidenced by poor comparable store sales over two years and a weak 4.2% free cash flow margin across five years. This financial strain restricts strategic flexibility in a sector already grappling with post-pandemic inventory destocking, which has further suppressed demand and contributed to the healthcare sector's underperformance, lagging the S&P 500 by 9 percentage points over six months.

Bio-Techne’s struggles with profitability stem from its relatively small $1.21 billion revenue base, which prevents it from achieving economies of scale enjoyed by larger peers, resulting in diminishing returns on capital from an already low baseline. This scenario suggests that neither past nor current strategic initiatives are yielding expected growth, potentially forcing the company to rely more heavily on mergers and acquisitions to bolster its market position amid challenging sector dynamics.

Investor confidence in ResMed is underpinned by its strong Q1 performance, with revenue and earnings surpassing expectations thanks to robust growth in masks, accessories, and the AirSense 11 platform's expansion into new markets. Operational improvements in supply chain efficiency and digital initiatives that boost sleep apnea awareness have further supported margin expansion and market penetration. However, investor sentiment remains cautiously optimistic as rising component costs and the need to scale emerging ventures like Noctrix Health introduce uncertainty, though upcoming catalysts such as Noctrix's NIDRA device adoption and continued AirSense 11 rollout are viewed as promising growth drivers.

Select Medical (SEM) faces tempered investor confidence due to a troubling earnings trajectory, with EPS declining 14.1% annually over five years amid stagnant revenue, compounded by a heavy debt load of $2.97 billion and a net-debt-to-EBITDA ratio of 6×. Although its forward P/E of 12.7× suggests reasonable valuation, operational and financial risks limit upside potential, prompting analysts to recommend higher-quality alternatives, particularly in tech-focused healthcare segments.

Investor sentiment increasingly favors healthcare companies demonstrating consistent earnings growth, robust free cash flow, and strong returns on invested capital, as these metrics signal sustainable profitability and strategic strength. ResMed exemplifies this with a 9.1% average constant currency growth over two years, 15.2% annual EPS growth, and a 21.4 percentage point expansion in free cash flow margin over five years. Similarly, HCA Healthcare’s dominant market position is reflected in its 28.8% ROIC and EPS growth outpacing revenue growth due to share buybacks, justifying its attractive forward P/E of 12.8×. In contrast, companies like Bio-Techne, with a smaller $1.21 billion revenue base and a lofty 23.3× forward P/E, face skepticism due to diminishing returns on capital and the need for strategic adjustments or M&A to drive growth.