The Cochlear Limited (ASX: COH) share price hit an all-time high of $180.88 this morning, taking their yearly gains to 43%. Cochlear shares are up 158% over the past 10 years, according to Google Finance.
Cochlear's great run can be attributed in part to its business model, which involves heavy investment in research & development – Cochlear is widely recognised as a global leading in hearing aids. By developing advanced new products, Cochlear profits on the original sale, as well as on servicing the hearing aid throughout its useful life. With a dependent customer, Cochlear is also first in line to sell new products to the customer, resulting in long customer lifespans and significant value generation for the company.
However, while the company's profits have been growing strongly in recent times, a significant amount of that benefit was due to a weaker Australian dollar. Many of Cochlear's sales are in foreign currency, so a weaker Australian dollar effectively boosts profits.
Currently, Cochlear controls an estimated 70% of the hearing market globally, making it the dominant player and suggesting that further room for claiming market share here could be limited. However, Cochlear serves just 5% of the estimated people worldwide that suffer from hearing loss, which suggests that a huge number of people remain under-served, likely due to reasons of price and/or inability to access Cochlear's services.
This provides a decent tailwind, which could see Cochlear continue to grow strongly for many years in the future. However, today's share price of $180 reflects more than 40x this year's forecast earnings for Cochlear. Given that the forecast implies only 5% profit growth compared to last year, I believe that Cochlear's quality and bright future are already more than priced in.
