It has been another disappointing day of trade for the Cochlear Limited (ASX: COH) share price.
In afternoon trade the hearing solutions company’s shares are down 2.5% to a 52-week low of $156.56.
This means Cochlear’s shares have fallen 29% from their 52-week high of $221.44.
Why are Cochlear’s shares at a 52-week low?
Cochlear has come under pressure in the past few months for a number of reasons.
One of these was its valuation. Cochlear traditionally trades at a premium to the market average along with fellow healthcare star CSL Limited (ASX: CSL), but rising bond yields in the United States have led to many high PE shares being dragged lower in recent weeks.
In addition to this, news that the U.S. FDA has approved a hearing aid from audio equipment giant Bose has caught the eye of the market. There are concerns that Bose could be a competitive threat in the future.
And then finally, earlier this month Cochlear was dealt a blow when U.S. courts ruled against it in the patent infringement lawsuit by the Alfred E. Mann Foundation for Scientific Research (AMF) and Advanced Bionics LLC (AB).
Damages totalling approximately US$268.1 million (A$372.8 million) have been awarded to AMF and AB. While the company will appeal the judgement, the outcome of an appeal is not expected to be known for two years and could easily go either way.
Cochlear reported a net profit of approximately A$245 million in FY 2018, which means that these damages equate to 1.5x its most recent earnings.
Are Cochlear’s shares in the bargain bin now?
While I wouldn’t necessarily call them a bargain at 33x estimated FY 2019 earnings, I do think its shares are good value for investors that are prepared to hold onto them for the long term. Especially given its strong long-term growth prospects due to its leading position in a market tipped to grow strongly over the next couple of decades.
And I’m not the only that thinks this way. A note out of Citi a couple of weeks ago labelled Cochlear as a buy with a $202.00 price target. This recommendation was made after the damages to AMF and AB were awarded, so has taken into account this development.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Scott Phillips.