The Motley Fool

Can the Cochlear share price continue to beat the ASX 200?

Cochlear Limited (ASX: COH) is a company which provides investors access to a large capitalisation business in the healthcare sector of the S&P/ASX 200 (INDEXASX: XJO) index.

The company

As the company puts it, “Cochlear is dedicated to helping people hear and be heard”. For over 30 years the company has been innovating and developing implants for the hearing impaired. The company aims to bring lifetime value to customers and shareholders by: providing high quality products; providing a continuous service-oriented experience; and by utilising customer information systems to match customer preferences and needs.

The numbers

For the half to 31 December 2018, Cochlear posted 11% revenue growth to $711.9 million. Net profit was up 16% to $128.6 million. On constant currency terms, revenue and net profit were up 6% and 16%, respectively. The company currently trades on a price-to-earnings (P/E) ratio of 45x earnings, with a dividend yield of 1.57% (or 2.2% grossed up).

In previous articles, I’ve mentioned that consistent investment in research and development is a positive sign for future growth. Cochlear is another company which is investing in itself, spending 12% of revenue on R&D as of half-year to 31 December 2018. Due to the accounting for these expenses, earnings are reduced. If you adjust for this R&D expenditure, Cochlear trades for a more reasonable earnings multiple.

The big picture

Cochlear’s addressable market is growing. Australia’s population is ageing, and we aren’t the only country experiencing this phenomenon. According to the World Health Organization, by 2050 an estimated 16% of the global population, or 1.5 billion people will be aged 65 or over. This is nearly triple the number of people 65 or older in 2010.

Although it shouldn’t be one of the key considerations when choosing which stocks to invest in, taking a position on the macro environment can often help when you have lots of ideas. This is especially true where a company is either very cyclical or earns the majority of its revenue from one region. Cochlear falls into the latter category, with 49% of revenue derived in the Americas as of half year 31 December 2018. Currency fluctuations will impact on the numbers the company reports, with a weaker Australian dollar improving the figures.

Foolish bottom line

Cochlear is currently expensive, even by its own high valuation standards. This is because the company has a history of outperforming the market and we are 10 years into a bull market. The company’s patents, wide moat, and large addressable markets put it in a strong position to continue winning.

If the Cochlear valuation is a bit frothy for you, try these 5 companies trading at cheap valuations that all look to be good bets for your investment dollars right now.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

Stock #1 is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Stock #2 is another high-growth business trading near a 52-week low all while offering a 4.7% grossed-up yield...

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!

Motley Fool contributor Proutlb95 has no position in any of the stocks mentioned and expresses his own opinions. 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.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!