MENU

Why Cochlear Limited just invested $24 million in a sleep apnea treatment business

One of Australia’s best healthcare businesses in hearing aid maker Cochlear Limited (ASX: COH) trades on a very expensive valuation due to its best-in-class reputation as a manufacturer and retailer of hearing aids.

Even after recent share price falls it still trades on close to 40x trailing earnings per share of $4.21 in financial year 2018. This is because it has a strong competitive position, pricing power – as patients demand the best hearing aids – and a large global addressable market.

It also has a solid track record of long-term growth to prove its qualities as the kind of company investing legend Warren Buffett might even like at the right price.

It does however, have a few weaknesses including the risk of cut-price competition and the fact that it can be described as a one-trick pony in that it largely sells only slightly differing versions of hearing-aid devices or chips.

However, today it announced an investment that helps branch its operational interests out into another fast-growing area of medical devices.

It is to invest EUR13 million (A$23.8m) into a European medical device named Nyxoah S.A. that’s “focused on the development and commercialisation of a best-in-class hypogloassal nerve-stimulation (HGNS) therapy for the treatment of obstructive sleep apnea”.

In reality this is a small investment in a start-up type business and therefore not especially material to a $10 billion business like Cochlear, but it’s possible over the long-term it may turn into a good deal for investors.

It’s also notable that Nyxhoah’s in-development-therapy for the treatment of sleep apnea is described as “minimally invasive” and an “attractive alternative” for patients who struggle to comply in using traditional masks for the treatment of obstructive sleep apnea via continuous open airway therapy.

The market leader in this sector is ASX-listed ResMed Inc. (CHESS) (ASX: RMD) and the potential for innovative new therapies to challenge its existing medical devices is a risk for investors to watch. Today ResMed shares are down 3.3% to $14.31, which is not much worse than the wider S&P / ASX200 (ASX: XJO).

Cochlear’s share price is down 3.1% to $169.90 on the kind of day when shares paying BIG dividends become more attractive..

Such as the one identified by The Motley Fool below….

OUR #1 dividend pick to grow your wealth now is revealed for FREE here!

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.