Is Cochlear’s current price an opportunity?

Hearing device manufacturer Cochlear (ASX: COH) has seen its share price tumble more than 13% over the past six months, but does it represent an opportunity to pick up shares on the cheap?

It’s not like the market has suffered much over the same time period, with the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) adding more than 5% since May this year.

And Cochlear’ shares are tumbling again today, down 0.7% in early morning trade, changing hands just above $56. It’s a far cry from its 52 week high of $82.87. Short sellers are having a field day, with Cochlear the most heavily shorted stock on the ASX. However, as the shorters found out to their detriment with JB Hi-Fi (ASX: JBH), the strategy doesn’t always pay off.

Cochlear is partly to blame, after warning investors that it faces flat profit growth over the 2014 financial year, thanks to a reduction in hedging revenue, and rising costs from new product launches. Chairman Rick Holliday-Smith says the company is on track for profit growth in the following year. CEO Chris Roberts has also suggested that this is an unusual year, with lots of new products being rolled out. Cochlear is investing heavily in new and improved sound processors, the Nucleus 6 and the Baha 4. What is hurting Cochlear is that patients are holding off on buying older products until the new ones arrive.

At the same time, Cochlear’s largest rival, Advanced Bionics, has released new and improved products that are seen as decent competitors to Cochlear’s premium products. The company has also been hit by news that smaller start-ups, particularly in China, were winning Cochlear’s contracts and producing products at prices much lower than Cochlear’s.

However, investors should look through the noise and realise that this is more than likely just a temporary hiccup for the world’s leading hearing implant maker. Like another great Australian biotech company, CSL (ASX: CSL), Cochlear has a strong market share and a quality line-up of products. Demand is unlikely to die down any time soon, and in fact is likely to increase over time.

Foolish takeaway

Patience is the key, and Cochlear has suffered a number of minor hiccups along the way, including having to recall one processor in 2011 after it was found to leak, and a downturn in European sales in 2003. Shares in Cochlear surged after both, with the company coming out stronger and more experienced. At current prices, Cochlear may be worthy of adding to your watchlist.

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Motley Fool writer/analyst Mike King owns shares in Cochlear and CSL.

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