Is it time to buy the dip in the Cochlear Limited share price?

Hearing implant manufacturer Cochlear Limited (ASX:COH) has not had a positive start to 2018, with with its share price down 3.5% to $165.20 at the time of writing. Shareholders of Cochlear enjoyed a stellar 2017 as its share price soared 40% following another excellent operational performance.

However, since hitting an intra day high of $187.60 on November 28, Cochlear shares have lost 12% despite the bullish sentiment across global equity markets. Fellow large cap healthcare stock CSL Limited (ASX: CSL) has also seen a fall from its late November highs but not to the degree of Cochlear’s.

Why are its shares down?

The recent appreciation of the AUD/USD and profit taking could explain the downward momentum since late November as Cochlear has not released any market sensitive announcements over the period that would precipitate such a decline.

The AUD/USD 2017 high was in early September around the 81 cents level. A steep fall over the next 3 months saw it bottom at the low around 75 cents level in early December. During that period, Cochlear shares surged from the high $150’s to new all time highs of $187.60 in late November.

It’s not a perfect correlation but the reversal of trend in the Australian dollar over the last several weeks to 79.5 cents has seen Cochlear’s share price fall.

Foreign exchange movements impact stocks like Cochlear because of the substantial amount of revenues generated offshore. In the 2017 financial year, Cochlear earned only 17% of its $1.24 billion in revenues in the Asia Pacific. 48% of the company’s revenues were earned in the Americas region and the remaining 35% were generated in the EMEA (Europe, Middle East, Africa) region.

I suspect there was also some profit taking given the surge in Cochlear’s share price. UK Investment management firm and substantial shareholder Baillie Gifford has reduced its ownership interest in Cochlear from 9.44% to 8.43% following an announcement issued on December 22.

Time to buy?

Cochlear is a great Australian company whose track record and growth prospects are worthy of trading at an above average market multiple. Determining the level of the premium is the difficult part of the equation.

At current prices, Cochlear is projected to earn around $4.44 in FY18 which means the stock trades at forward P/E of around 37.

The market is still pricing a significant beat of expectations for Cochlear given management guided for a 10% growth at constant currency in FY18. The company is expected to announce its half yearly earnings on February 13 and will need to deliver. If it’s unable to deliver, an even better buying opportunity could eventuate.

Don’t Buy A SINGLE Stock Until You Read This

While conflict overseas is all media talking-heads seem to mention these days, the billionaire founder of Tesla is losing sleep over what he sees as a far bigger threat.

Elon Musk Warns: This has “vastly more risk than North Korea”

If you missed your opportunity to get in on Google, Microsoft, or Amazon in their early days, don't let it happen again. This emerging technology trend could offer a second chance for anyone who wishes they took part in these millionaire-maker stocks.

Click here to discover more!

Motley Fool Contributor Tim Katavic owns shares of CSL Limited. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!