Undervalued ASX founder-led companies
Can this strategy pick the winners?
Mentioned: Redox Ltd (RDX), ResMed Inc CHESS Depositary Interests on a ratio of 10 CDIs per ord.sh (RMD)
In a previous edition of my Young & Invested column, I explored an attribute often linked to company outperformance: the strong presence of a founder. This includes businesses in which the founder retains a significant stake or holds an executive position with the ability to influence long term strategy.
Australian fund manager, Blackwattle Investment Partners quantified this edge by building a founder index (equal-weight portfolio of 50 ASX founder-led companies). This strategy outperformed the ASX 300 by 18% a year in the decade to October 2024.
But this isn’t a free-for-all situation. Being founder-led doesn’t automatically mean investable. A large element still relies on making tactical allocations.
In his book, The Founder Effect, author Lawrence Lam details his process for finding quality businesses that fit his criteria. These include consistent earnings growth and conservative balance sheets. Further to that, he looks at strong market position, a diversified customer and supply base, as well as a founder engaged in developing new products and services.
With that lens in mind, I went searching for ASX-listed companies that not only fit Lam’s criteria but also trade below Morningstar’s fair value estimate. Two names stood out – ResMed and Redox, which I’ll be exploring further in this article.
Redox RDX★★★★★
- Moat Rating: No moat
- Share Price: $2.83 (3/10/25)
- Fair Value: $4.20
- Price to Fair Value: 0.67
- Uncertainty Rating: Medium
Australia’s largest chemicals supplier Redox, was founded in 1965 by Roland Coneliano, who retired in 2015 after fifty years at the helm. Redox has since remained in family hands, with grandson Raimond Coneliano as CEO and managing director. Even after its 2023 IPO, the founding family members retain a majority shareholding around 70%. The company’s phenomenal growth story has seen sales grow at an average rate of 12% over the thirty years to June 2024.
Founder led businesses often have a reputation for being more conservative in how they finance growth. We see this reflected in management’s cautious approach to acquisitions and general debt-free status, which has served them well. With net cash of $124 million as of June 30, 2025, our analyst Esther Holloway believes they are well placed for larger acquisitions or further distributions to shareholders.
Rallying almost 30% over the last few months, the company had a rather successful earnings season with fiscal 2025 revenue at $1.2 billion (+9% YoY), which was broadly in line with our forecasts.
Macro headwinds and higher ongoing expenses weighted on adjusted EBIT margin which came in 9% lower than the prior year. Despite the rally, we think the market remains overly concerned about near-term cyclicality with the shares still trading around 35% discount to our fair value estimate.
We expect sales growth to average 10% and gross margins about 21% over our ten-year explicit forecast period. This happens as Redox increases its share of spending per customer through entering new segments and widening its product range. Serving customers from over 200 sub-sectors shields the firm from the full impact of cyclicality.
Although in the near term, we do expect softer demand as consumers reduce their discretionary spending, but from fiscal 2028 our long term revenue growth assumption is intact.
ResMed RMD ★★★
- Moat Rating: Narrow
- Share Price: $42.07 (3/10/25)
- Fair Value: $45
- Price to Fair Value: 0.93
- Uncertainty Rating: Medium
In 2013, CEO Michael Farrell succeeded his father and took the reins from ResMed founder, Dr. Peter Farrell. ResMed famously commercialised the CPAP device, intended to treat obstructive sleep apnoea. Michael joined in 2000 and has since been credited with growing the company from a $7 billion market cap to $60 billion today.
Under Michael’s tenure, the ASX healthcare leader has transitioned from being a primarily hardware-focused device manufacturer, to pioneering innovations in respiratory therapy including cloud-connected medical devices.
The company’s latest strategy revolves around growing and differentiating their core sleep apnea product suite, as well as capitalising on market opportunity and brand advantage in broader sleep health and breathing health adjacencies.
Investment efficacy has been exceptional. ResMed has generated an average return on invested capital of 20% over the last decade and we forecast this to increase to 26% on average over the forecast period.
Studies shows that founder-led businesses are more likely to invest in research and development. This is evident in ResMed’s commitment to R&D spend, which averages ~7% of revenue per year. Our analyst believes this has supported its above-market revenue growth.
The company had a solid earnings season with strong results like a 10% increase in fiscal 2025 revenue and a net income increase of 37% to $1.4 billion. This met our forecasts; however we are more optimistic on future profitability as the full benefit of cost improvements and efficiencies are yet to be realised.
The sleep apnea market is still largely under-penetrated with most patients being undiagnosed. A key trend we are seeing is a boost in diagnoses with the uptake of wearable technologies that can detect signs of the condition. We believe ResMed is well placed to benefit and gain market share.
It is important to note that any asset class should be considered as part of a well-defined investment strategy. For a step-by-step guide to defining your investing strategy, read this article by Mark LaMonica.
